How to Get Started with Retail Arbitrage

 

How to Get Started with Retail Arbitrage Sourcing

Getting your first product listed for sale on Amazon is a straightforward process. Here are the steps you need to take:

1.   Register for an Amazon Seller Account.

2.   Download the Amazon Seller App.

3.   Visit your local retail stores.

4.   Use the Amazon Seller App to scan clearance and sale products.

5.   Buy any that offer over $3 profit after fees and shipping.

6.   List them for sale on Amazon.

This process is one that you can get started immediately – and you should plan on starting as soon as possible.

Let’s go through each of these steps in detail now…

1. Register for an Amazon Seller Account.

The first step in getting started with retail arbitrage is setting up an Amazon seller account. This is the account you’ll need to sell items on the platform. It will also give you access to the tools you need to get started.  

To start the process, head over to services.amazon.com.

When you get there, you’ll see this page:

If you click that yellow start selling button, you’ll start the process of registering for a Professional account ($39.99 a month).

The yellow ‘Start selling’ button will start the registration for a Professional selling account, which will cost $39.99 a month regardless of how much you sell. Your other option is to scroll further down the page and look for the link to set up an Individual account:

The Individual account is free – but you will pay a $0.99 per item sold fee that you don’t pay on the Professional account.

In the long run you will want a Professional account because you’ll save money once you are selling more than 40 items a month, and because you need a Professional account to earn the buy box. Professional accounts also unlock the ability to apply to sell in restricted categories, allowing you to sell a wider range of products over time.

You can find a more detail discussion of this in my beginner’s guide to selling on Amazon. 

In general, I would recommend going with the Professional as soon as it makes sense and you can afford it, but you are fine to get started with the Individual option. You can upgrade to a Professional account at any time.

Once you choose the account type you want, you will be required to fill out some forms to get your account setup. It should take less than 10 minutes, and then you will be able to get started selling on Amazon.

The guide I linked to above includes more details about this process in case you get stuck.

2. Download the Amazon Seller App.

Once you have signed up for an account, you will have access to a free app that will help you figure out which products to buy.  

There are a variety of retail arbitrage scanning apps out there, but the Amazon Seller App is the best option as a beginner because it provides all the details you need and it’s free.

The app allows you to use the camera on your cell phone to “scan” the barcode of any product. Then it will show you the selling price on Amazon, what the fees to sell the item are, and a few other pieces of helpful information. We’ll walk through exactly how to use the app and evaluate products later in the post.   

3. Visit your local retail stores.

When it comes to deciding which stores to get started at with retail arbitrage, there are a huge number of options. My recommendation is to start with whichever store is closest to you and that you have the easiest access to. Make it easy on yourself for your first trip and over time you can try out a variety of stores.

Here is a list of 16 of the best stores for retail arbitrage. I have purchased items at all of these to sell on Amazon in the past.

• Walmart
• Target
• Kmart
• Shopko
• Meijer
• Home Depot
• Lowes
• Menards
• Big Lots
• Walgreens
• CVS
• Rite Aid
• Toys R Us
• Bed Bath & Beyond 
• Office Depot
• Staples

4. Use the Amazon Seller App to scan clearance and sale products.

Once you have the Amazon Seller App installed and are in a store, it’s time to use the app to find profitable items to sell on Amazon.

When it comes to finding items via retail arbitrage, I often get the same question: “what are the best items for retail arbitrage?”

The best items are items that sell fast at a healthy ROI. There is no silver bullet – you need to hunt until you find these items, and you shouldn’t narrow yourself to one type of item.

For any item that you are considering selling on Amazon, you should be scanning it with the Amazon Seller App, or using a similar tool before you make a purchase. This will tell you the exact fees on it so you can make an informed decision about that item. With these type of calculators available, you should know in advance what your expected profit is on any item you are going to sell.

Let’s walk through a hypothetical example of what this looks like to help you understand exactly how to use the Amazon Seller app to determine if items you buy via retail arbitrage will be profitable to sell on Amazon. 

So, let’s say you came across a copy of this book available to purchase for $8 at Barnes & Noble. These are the steps to determine if it’s an item that will be profitable to sell on Amazon:  

Open the Amazon Seller App on your phone. Click on the camera icon in the top right-hand corner of the app (shown with the red arrow).

 

This will activate the camera. At this point, you want to focus your phone’s camera at the bar-code on the product, which will look like this:

Then you will click on the arrow that is next to the item that matches the item you scanned. Indicated by the red arrow in the screenshot above. Then you will see a screen like this:

There are two things that we need to check on this screen above.  

The first is to make sure that you are eligible to sell the item on Amazon. This is shown under the selling eligibility section and will show a green checkmark if you are able to sell the item (this section is marked by the green arrow).

The second thing to look at is the sales rank in the top left-hand corner of the screen. On this item, we can see the sales rank is 1,448 in the books category (shown by the yellow arrow).  

The sales rank is an indication of how quickly an item is selling on Amazon in relation to other items in the category. When it comes to sales rank, the lower the number, the more often the item is selling. I won’t get into all of the details of sales rank in this post, but the key takeaway is the lower the number the better.  

For your first few retail arbitrage trips, I recommend looking for sales ranks that are below 250,000 in their respective category. Over time I highly recommend adjusting this, but staying under 250,000 is a good range when you are just getting started.  

If the app shows you are eligible to sell the item AND the sale rank is less than 250,000 it’s time to move on to the next step of the evaluation.  

If either of the above criteria are not met, do not buy the item, and move on to scanning the next item.  

5. Buy any that offer over $3 profit and 50% ROI after fees and shipping.

The next step is to check the return on investment on potentially profitable items.

We do this by clicking on the arrow on the right side of the screen as indicated by the red arrow in the screenshot above. That will bring up this screen:

You will be able to enter the selling price (green arrow), your cost per pound to ship to Amazon (I use $0.50/lb), and your cost to purchase the item. In this example, I’m showing that I can buy this item for $8 (yellow arrow).

Once we have that information entered, we can see what our profit on the item will be based on the information we entered (red arrow).  

At this stage, there are 2 quick checks that you want to go through.  

The first is to see if the net profit number shown at the bottom is higher than your minimum profit threshold. Typically I recommend setting this at around $3 per unit.  

This means that you won’t buy any items that you will make less than $3 in profit on. Having a potential net profit of less than $3 per unit does not allow for very much upside and a small drop in price can wipe out your profit. It’s your decision what minimum profit threshold you want to set, but $3 is what I use.  

If the item meets your minimum profit threshold, then you will want to calculate the return on investment percentage. You can do this by dividing your profit by the cost of the item.  

In this case, it’s your profit of $6.40 divided by your $8 cost, so the return on investment percentage is 80%. When you are first getting started, I recommend looking for items with a return on investment percentage that is greater than 50%.

To say this more succinctly, when getting started with retail arbitrage, you want a profit of greater than $3 per unit and a return on investment greater than 50%.  

So this particular item meets all of the criteria for purchasing the item and should be purchased.

For any item that fits all of the purchasing guidelines, I recommend purchasing up to 6 of the item. In this example, if there were 20 copies of this book on the shelf for $8 each, then I would buy 6 of them.

The reason for this is to keep your inventory diversified to keep your risk as low as possible. If you buy 20 of an item and the price goes down after you buy it, then you have a much bigger problem than if you only have 6. It also generally takes longer to sell through more units of a single item, as compared to a few units of many different items.

As you gain experience, you will find scenarios where it makes sense to buy more – especially when you can find a high-demand item at a healthy profit.

When you are first getting started, I recommend scanning as many items as possible. Don’t make assumptions about what is selling and what isn’t. Doing this makes it easy to miss out on products you might not value that are still profitable to sell!

For each item that you scan, I recommend going through the evaluation in the order that I showed above. That order is as follows:

1.   Make sure you are eligible to sell the item

2.   Sales rank is under 250,000

3.   Profit is greater than $3 per unit

4.   Return on investment is over 50%

Going through the process in this order will be most efficient, and allows you to quickly move on from items that don’t fit your buying guidelines.  

These are the guidelines that I recommend when you are first getting started with retail arbitrage sourcing. Over time as you gain more experience, you should adjust these guidelines based on your experience.  

6. List them for sale on Amazon.

After you have purchased items to sell on Amazon, your next step is to list the items for sale on Amazon (and ship them to FBA warehouses if using Fulfillment by Amazon).

Getting some Brita filters ready for FBA.

In my business, we use the FBA program for just about every item that we sell on Amazon. Utilizing this program allows us to ship items to Amazon in bulk, and they handle shipping items to the individual customers.  

Fulfilling orders yourself (merchant fulfilled) will sometimes make sense, especially during Q4 if you are running out of time to get a product to FBA warehouses or if you want to take advantage of a temporary absence of FBA inventory for an in-demand product. But the vast majority of the time, FBA will be the better bet.

How Much Money Can You Make With Retail Arbitrage for Amazon FBA?

As you’re reading, you might be wondering just how much money you can make using retail arbitrage strategies.

In the near-term, this largely depends on how much time and money you are able and willing to invest in the beginning.

The more money you are able to invest, the more inventory you will be able to buy. And the more inventory you have, the more you can sell.

For perspective, in my first three months selling online full-time, I was able to take $5000 in start-up capital and earn $16,376.35 profit. The $5000 start-up capital was money I had saved up from selling online in college and when I had my accounting job.

Expert Level Retail Arbitrage Tips 

As you are getting started on your journey I want to share a few of my best FBA sourcing tips. This should give you the best chance of success.  

Know your numbers!

The apps will give you all the information you need to stay profitable. I’ve seen many people get surprised by the Amazon fees, and it simply should not happen if you are using the app as outlined in this post.

Make as few assumptions as possible.

When you are just getting started with retail arbitrage, you need to be on guard against assuming things aren’t worth scanning. I’ve sold cereal for over $20 per box, sold beauty supplies, sold discontinued items for over 5 times their normal retail price among many other “crazy” items.

If I made assumptions about what these items sold for, I would have been wrong.  

Learn individual store markdown schedules.

If you learn which day stores discount certain items, this can give you a leg up on your competition.

Along this same line of thinking, some stores will discount items further the longer items sit on clearance. Figure out how each store runs its business and use this information to your advantage.

For example, Target follows a predictable markdown schedule on their clearance items. Most items will start off at 15% off and the discount will increase the longer the item sits on clearance. The normal progression is 15% off > 30% off > 50% off > 70% off. There are exceptions to this, but at Target if you are buying at 70% off, that’s likely the lowest the price will go.  

Be patient in learning the process.

Gaining the experience to know which items will be profitable and which ones won’t takes a lot of time.

In some ways, it’s similar to fishing. An expert fisherman and a novice fisherman can go out on the same lake and come back with vastly different numbers of fish. So be patient in learning the process, and as you build experience, you will become more efficient when sourcing via retail arbitrage.