Introduction
Having read a lot about Fulfillment by Amazon (FBA) and how people use retail arbitrage to make a profit, I thought this could be a potential way to help me meet spending requirements on credit cards while making some cash on the side. For those who don’t know, FBA is a service offered by Amazon for third-party sellers. You send your products to Amazon’s fulfillment center and they take care of the rest (packing, shipping, customer service, etc.). One popular tactic for selling on Amazon is called retail arbitrage (RA) where you find products at a low price (usually in clearance) and flip them on Amazon. Since FBA handles all order fulfillment, you can spend your time sourcing new products. Sounds great, right? I decided to do a little experiment to see if RA is actually a viable model for the average person. In this post, I’ll be sharing my thoughts on selling on Amazon, what I’ve learned about RA, and my Amazon FBA selling results.
Methodology
This experiment used two primary methodologies for sourcing products to sell on Amazon: retail arbitrage (RA) and online arbitrage (OA). RA consists of visiting stores in search of clearance or discounted items that will make a profit after Amazon FBA fees. OA is a similar methodology where the sourcing is done through online shopping. You can read more about both methods here.
Retail Arbitrage
When looking for RA items, I had the most success at the following stores:
- Marshall’s
- T.J. Maxx
- Homegoods
- Goodwill (used books)
I basically just went store-to-store scanning items with the Amazon Seller app to see if they would be profitable. This was very time consuming and is the main limitation of this method. Also as a newbie, it was hard to decide if I should pull the trigger on certain items. Keep in mind that there are several gated categories that require approval before you can sell items from them. You also need to avoid restricted brands.
Online Arbitrage
For OA, I mainly sourced from kohls.com. Kohl’s is a good place to combine deals. You can use Kohl’s Cash, their regular store rewards, and coupon codes in addition to earning cash back from Ebates. I combed through websites manually which was time-consuming and somewhat futile. While I wasn’t ready to invest in software for online sourcing, I did a 7-day free trial of OAXRAY. This software scans websites and returns a list of items that could be profitable. You can also do a 7-day trial of a similar software called Tactical Arbitrage.
Initial Investment
Through both sourcing methods, I spent about $300 on 43 items to build up my inventory. This was an amount that I was comfortable losing in the event that nothing sold. I also invested about $30 in supplies. I bought the following:
- Avery Easy Peel Address Labels
- Scotty peelers (crucial for removing store labels)
- Goo Gone
- UPS labels (these can be ordered for free on ups.com)
You can pay to have Amazon label the items for you for 20 cents an item. It probably would have been better to let Amazon do it for me since I wasn’t sure if I would continue selling after my experiment.
Packing and Shipping
After a week of sourcing, I was ready to start sending boxes to Amazon. I sent my first of four on February 15th and my last on February 21st. I spent about $30 on shipping which is really great considering each box was over 10 lbs. Sometimes Amazon makes you send parts of your shipments to different fulfillment centers. This means you’ll need to ship separate boxes which can increase your shipping costs. Luckily, all of my boxes needed to be sent to the same facility in New Jersey. You can learn everything about preparing a shipment for Amazon FBA from this video.
Results
My first package was received on February 18th. The products were up on Amazon the same day. Now it was a waiting game. I’d read lots of blogs of people waking up the next morning with their app showing hundreds of dollars in sales. I woke up the next day to a big fat zero. I woke up to four days of big fat zeros until finally, I had my first sale! I made $6.36 on a used copy of The Girls by Emma Cline. I was nervous by how slowly things were going, and I didn’t have my next sale until a week later.
This was not how it was supposed to be going…I should be rich by now! I had the sinking feeling that I failed and basically threw away a few hundred dollars. Things continued this way until the end of March. Then, I miraculously sold 14 items in a week. I’m not sure what happened, but my sales have been more steady and I broke even on April 6th.
As of May 7th, I have 11 items left to sell. My net profit is at $154. It’s not much but at least I got my money back and a little extra. My biggest profit on an item was $35 and my lowest was $1. I only sourced items that, at the time of sourcing, would net $5 or more. This is a good example of how things can change quickly in the dynamic world of selling on Amazon!
What I Learned
I definitely made a bunch of mistakes during my FBA experiment. My $154 (and counting) profit is not huge but had I started with a larger initial investment and continued to reinvest, I could see the potential for growth. I think I would get faster at sourcing as I learned more, but the $150 is not worth the hours I invested. Here are the most important things I learned about Amazon FBA from my experience.
1. Sales rank matters
I knew that sales rank was important, but I didn’t know how important. Basically, the lower the sales rank, the faster the item will sell. You can use this as a guide to see what is a good sales rank for different categories. Had I seen this earlier, there are definitely items I would have left on the shelf. Along these lines, if you’re on the fence about an item, don’t buy it. Find something else with a better sales rank and profit margin. Also, avoid competition by sourcing items that do not have a bunch of other FBA sellers selling them.
2. Price your items low, but not too low
Prices change on Amazon all the time. You can track pricing history on camelcamelcamel.com to see how an item has done over time. When listing an item on Amazon, you want your price to be low so you win the Buy Box. If you price too low, your competition will keep undercutting you which causes the price to plummet. In some cases, the price of an item dropped so low that I would have lost money on it. I returned a few items before even sending them in because of this. I also placed a removal order (costs 50 cents per item) to get items sent back to me so I could return them to the store rather than selling at a loss.
3. Don’t buy items that have a warranty
Once you purchase an item with a warranty, that warranty is only valid for you. Since you are most likely not an authorized seller of the product, you don’t have the ability to extend this warranty to whoever buys it from you on Amazon. The buyer has a right to the warranty for the product they’re buying so it’s best to avoid any products that come with a warranty. I made this mistake a few times and ended up returning items because of it. It’s better to play it safe because a few wrong moves and upset customers could get you banned from Amazon. Then what will you do with your inventory of random stuff?
4. Buy used books, especially non-fiction
This was the item that sold the fasted for sure. I actually would consider continuing FBA but just selling used books from Goodwill. The Goodwill in Boston was a little more expensive than ones outside of the city, but I got most of the books for 2 or 3 dollars. When sourcing at Goodwill, I found that non-fiction books had the most potential for profit. I’m not sure who wants to read The Fulfillment of All Desire by Ralph Martin but it made me a quick $10 profit!
Final Thoughts
I’ve already alluded to it, but I won’t continue selling through Amazon FBA once my inventory runs out. It takes a decent amount of time to become good at sourcing items. I don’t have the time to invest for the small payout I was seeing for my efforts. I also think that retail arbitrage is a little bit sketchy so I personally don’t feel comfortable continuing with it (I talk about that more in this post). For some reason, I feel like selling a new, unopened item you bought elsewhere has its place on eBay. eBay customers are more likely to expect that their item was purchased elsewhere. When I shop on Amazon, I’m expecting what I buy to come directly from a merchandiser or wholesaler rather than a rando that bought it on sale at Target. I may sound hypocritical since I too was that rando, but actually selling on Amazon helped me come to this realization. No judgment for those who do continue to use FBA since I can definitely see the potential for big profits!
Have you ever sold anything through Amazon FBA? Share your results below.
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Enjoyed the post. I created a seller’s account a few days ago and discovered it’s much more difficult than I expected to find items for retail arbitrage. Was there one store in which you had the most success? So far I’ve ventured to Walmart clearance aisles where I’ve found a few home runs on protected brands and a couple singles on no prerecord/monster categories and goodwill where I found a couple used books selling for less than what it would cost to fulfill.
Thanks for reading! The clearance toy sections at T.J. Maxx and Marshalls is where I found some of my better items. If I was more dedicated, I would have checked other locations of the these stores after finding profitable items but I only have so much free time on the weekends! One of my best finds was a toy float at T.J. Maxx that cost $12 and made a $35 profit.