Online arbitrage is by far my favourite form of reselling. I still do the others that I mention on here, but online arbitrage is so much simpler to scale up. Now I reckon I properly know what I’m doing, I can look back and see what mistakes I made in my early days.
Below are the 18 things that I wish I knew before I started this journey:
1. eBay comparisons waste time
The two main marketplaces for online arbitrage are eBay and Amazon. When I started out, eBay was my comfort zone. I’d done loads of car boot-to-eBay flips, and a bit of retail arbitrage on there. Once I added online arbitrage to my arsenal, things had to change.
At first I was reluctant to move on. When I was sourcing deals, I would always check whether the profit would be higher on eBay or Amazon first. After a couple of months, I had to cut that out. The whole reason why people explore online arbitrage is because Amazon FBA offers a more time efficient method of reselling. The process of photographic, listing and shipping products takes up a lot of time on eBay.
Amazon FBA cuts out absolutely loads of time, usually negating any difference in commission from an equivalent sale on eBay, so all of my online arbitrage is done with Amazon.
2. Toys aren’t special
There’s a tendency for new online arbitragers to gravitate towards the Toys & Games category on Amazon. How this came to be, I’m not sure, but I found other categories far earlier to source deals and profit from. My first box or two was primarily filled with toys, but those days are long gone. The odd one may end up in an FC-bound box.
Toys are overexploited as an online arbitrage category. The competition is ridiculous, meaning that margins are smaller, it takes longer to sell your stock, and your experience just isn’t great. Look out how many millions of other products are out there. Everyone else is distracted, so go and take advantage before they realise their mistakes.
3. Sell in as many categories as possible as soon as possible
Over time, Amazon have gated off more and more of their product categories and sub-categories to third party FBA sellers. For example, if you weren’t a Music seller by autumn 2016, you missed out on your chance to profit on HMV sales. To resist the onset of potential gating, sell in every category you can think of, as soon as you can.
Amazon tend to grandfather in sellers that have already sold within a category. It’s why lots of Beauty sellers got around it when there was suddenly an Ointment sub-category restriction. Even if you lose money on the products, just make sure that you’re in there, so you have the ability to sell profitably in the future.
Not only does this protect you from this, but it also gives you experience to know how to navigate through sales in different categories. For example, what products are more prone to returns, penny-under parties, and random Amazon restocking influxes.
4. Early ungating is essential
Connected to the last one, those Amazon restrictions prevent unverified third party vendors from selling items that are prone to issues. For example, they need to trust that Grocery sellers are purchasing from legit wholesalers. Get ungating pronto, because you’ll have the ability to sell in hundreds of thousands more product categories.
Amazon are prolific goal post movers. Depending on whether you’re a Pro Merchant, when you started seller, your account health, and a whole heap of other factors, Amazon treats everyone differently. I was able to get ungated in Beauty with a single invoice of a £11 purchase, and a company incorporation certificate scan. Newer sellers usually have to supply three separate invoices, and may have other hoops to jump through.
5. Amazon always holds the buy box for new books
You can absolutely battle with Amazon for the Buy Box. They will hand in over in some instances. When it comes to new books, just back off. Amazon is super aggressive, and even when you massively drop the price, they just won’t budge. Don’t expect them to go out of stock and win that way either. Just let Amazon have their new books.
A lot of the new books I used to send in were ones I got for free. How could I lose on those? I could drop the price so I only make a penny profit. I did. I didn’t get sales. Those long-term storage fees crept around. I had to destroy in inventory. Feel free to jump on the new books that they aren’t selling. Otherwise, steer clear. Consumers are almost always blind to cheaper deals, if they aren’t in the Buy Box.
6. Software cuts so many corners
I spent hours looking for deals every day, before I got into online arbitrage properly. Hours. Doing it manually, you will start to think that there’s absolutely nothing out there, and you’re wasting your time. Then I moved on to FBA Wizard, and it found everything for me. It changed everything, scanning while I was busy on other stuff. Then the constant mismatches annoyed me and I levelled up to use Tactical Arbitrage. Now I’ve constantly got the system searching for deals more accurately for me.
I’ve got some very helpful Chrome extensions that speed my sourcing up for me now. There’s of course Keepa, but then also one for checking my proximity to the Buy Box, another for giving an average price and Sales Rank over the past 90 days. Another that checks stock levels. All of them help me to make better decisions, and I couldn’t do without now.
7. Keepa is king
Bestsellers rank is cool and everything, but Keepa literally tells you how frequently products sell. It’s right in front of your face. If you don’t plan on using any of the paid software, make sure that you’re checking Keepa beforehand.
The Sales Rank and price history are incredibly helpful, but the advanced features are why it’s such an important tool in your arsenal. Being able to see how many people have been on the listing, previous list prices and the Buy Box price make it so much easier to tell if you’re onto a winner or not.
8. Copying is the quickest way to success
Copying in many contexts is wrong. When you’re trying to build your business up, the safest way is to do exactly what the more experienced people do. By studying the way that they price, the value of their stock, whether they compete with Amazon, the diversity of their inventory, I’ve got a far better understanding of what works.
Before I invested into software, I was able to treble my sales by going through one seller’s store, noting down all the abnormally highly price products, then looking to see if I could buy it for eBay with profit to spare. There were loads. The seller had a 2,000-product inventory. I found 60 SKUs worth my while, and many more that I could set up Saved Searches for. Now I can do the same using Tactical Arbitrage’s Reverse functionality, and continually find great deals that way.
9. Overpricing is always better than underpricing
I have a list of sellers that I’d like to have a word with. There’s the penny-under repricing crew. I understand you, but please stop. Then there’s the mega under repricing crew. Some will jump 50p lower, just to make sure they don’t share the Buy Box with you. Eventually, these lot will sell out. When they do, make sure your product is priced suitably – showing them the profit they could have had, if they had just upped the values.
Underprice an item and you attract fellow low pricers that will make sure your profit is tiny. If you hold your prices high, although it may take longer to get sales, you will get a better return on your investment. That’s what we all want. The ones that price way above the average price (beyond Buy Box eligibility) are playing the extra long tail game. Go slightly above the average to maximise your profits.
10. The Buy Box isn’t everything
Most of the time, your aim should be to secure the Buy Box. The lion’s share of all sales are made through it, and when you’re selling highly competitive products, it’s pretty much your only hope of getting a sale. When you have no proper competition – like when you’re the only person with a new copy of the item – you have the ability to price much higher than usual. Customers might not be able to get the product anywhere else, so you can go beyond what the Buy Box will allow you to.
Again, this is a more advanced technique, but in my early days, I completely ignored listings with no Buy Box. A recent high profit driving example was an item I bought for £121.99. The lowest new price on Amazon was £250, but there was no Buy Box. £180 would give me the Buy Box, but I would only get £22 profit. Sitting tight for 50 days at £250 helped me get £80 profit instead (even after an MF seller dropped their price to £230).
11. Try before you really buy in volume
I ran before I could walk, and dipped into quantities of 5-10 far sooner than I should have. Although I was lucky and managed to shift all the units of those early ones (eventually), it might not have ended up that way. If a product isn’t on sale and it’s being sold by a more obscure store (or eBay), I’ll see how one or two units sell first. If it goes to plan, I’ll come back for the rest.
Keep your inventory broad and shallow. There’s no need to go deep with any items, unless you’re absolutely certain that you can make a killing on it. The only way to be this certain is by actually selling it for yourself first.
12. Amazon don’t mind losing money
Loss leaders help attract buyers to a shop. Things like milk and fresh fruit don’t make supermarkets money, but consumers expect them to stock them and in a certain price range. It’s the same deal with Amazon. They have expectations to meet. If a customer expects that they should have a good deal on a toaster – and Argos have lowered their price on it – they’ll follow suit too. This is despite the fact they might have paid more than the sale price for it.
Cash flow is everything and even when something sells well at a particular price, Amazon can decide to lower their own prices at any point. It’s the reason why I tend to avoid anything they’re actually selling. Unless I got something for free or it’s something with a very consistent Buy Box price, I’d rather stay away.
13. Profit is profit
I will take 50p profit for a fast seller with no FBA competition all day long. In the early days, I had strict minimum ROI and profit margins that I needed to stick to. Once you have more experience under your belt, all of this goes out the window, and you can afford to go for a mix bag of profit potential.
I’ve got products in my inventory that will return me £50 profit. I’ve got others that will make me 50p per unit. I’ve got products priced in the triple figures. I’ve got marked up Pound Shop products too. It all contributes towards the pot and is helping my business grow.
14. You will get sales in the first few months
There’s a fear that new sellers with a ‘Just Launched’ tag and no feedback won’t be able to get sales, but it just isn’t true. Provided that you price competitively and you’re not battling loads of other sellers for the Buy Box, all new FBA sellers will get their first orders pretty much as quickly as anyone else.
The longer you delay sending in your first shipment, the less likely you are to continue doing it. Just get on with it, and send the stuff in. After my first shipment, the second was filled with all the sealed products in the house.
15. Replenishables are everything
I came into the game thinking that it was all about the deals. Clearances, sales, promotional codes, and all of that stuff. While that does play a part in online arbitrage, consistent profit-driving replenishable goods are what keep the cash flowing in. The more of these that tick away in the background, the more you can concentrate on diversifying your inventory (with all of that extra money you’re building up!).
The first one I came across was an electronic item, but the majority of them tend to be in the gated categories. This is another reason to get yourself sorted out as soon as possible. Grocery, Beauty and Health & Personal Care products are contain the most replenishables. Now it’s your turn to go hunt for the ones you can profit from.
16. Wholesalers aren’t that bad
I knew absolutely nothing about wholesalers until I started doing online arbitrage. It just seemed like something that proper business people would use – not someone like me. It turns out that people like me, with a little side business flogging things on Amazon, are actually welcome. Finding them and getting set up can be a little hassle, but once you’re in, you’re good.
Wholesalers can be incredibly helpful in pointing you in the right direction of fast-selling items. They’re open to discounts to volume sellers and generally simplify the sourcing process. Your experience with them will depend on the individual supplier and the categories you sell in, but they’ve become an essential part of my business.
17. Keep sending things in
When you’re new to Amazon, just make sure you give them as many products as you can, as frequently as you can. Momentum is everything. Work within your budget, but keep feeding the beast.
I started by having certain sized boxes that I needed to fill, before I would send them out. That method is wrong when you’re trying to build up capital quickly. Every minute products are in your house instead of in Amazon’s fulfilment centre, you could be losing money. When each box costs just £5.04 to send out, and each individual unit made at least that in profit, they’ve got to be shipped.
In the early days, forget minimums. No minimum box values. No minimum quantity of units. None of that. Keep it moving. Cash in on your finds as soon as you can, and consider those things when you need to improve efficiency. That’s for the future.
18. Patience is essential
Above all, patience is essential. We all want to turn stock over rapidly. Ideally, it would only take a month to get each individual product sold. In reality, it doesn’t work like that. You’re going to have people that jump on your listings. You’re going to have market shifts. Things change constantly. Sit tight and see things out. When you crash the prices unnecessarily, it may bring sales faster, but it will slow your growth. Best practice is to triple check everything you source for the sales velocity, and ensure that your margins are healthy enough to withstand price dips.
When I first started out, I couldn’t take those random dips in price. On a few items, I was bullied into lowering the price, because I needed to get the money back on my investments. As I adapted my sourcing, it became less of an issue. It was a confidence thing. Once you know what you’re doing, you’ll feel more comfortable sitting back and letting people battle over price until they sell out – leaving you to take the rest of the customers.
::::::::::::: - Chiino I don't do comments around here, so let's keep the conversation going on Twitter. If Twitter's not your thing, give us an email.