I am all about trying side hustles. When my husband first lost his job, Amazon arbitrage was one of the first side hustles I found that genuinely interested me.
Unfortunately, we didn’t have the extra money to spend on inventory at the time. Luckily, we finally met our financial goals and set aside some money to experiment with amazon selling this month!
What is amazon arbitrage?
Amazon arbitrage is the process of purchasing new items that are on sale, marked down, or otherwise cheaper than normal and selling them on amazon for a profit.
Is arbitrage a viable side hustle?
As a side hustle that’s going to pay of your student loans, I think the honest answer here is no. Back in the day (2008-2014) people were making crazy good money buying name-brand items on sale. Some arbitrage moguls still make great money selling this way, but I think the market share is shrinking.
Unfortunately, brands in 2018 have changed the rules. Most name-brands are now seller-restricted, and Amazon has more suppliers than ever. With more suppliers, the profit margins on arbitrage are getting smaller and smaller as prices get lower.
Is it worth trying?
Absolutely! While I do not expect to make crazy money arbing, I DO think that it’s a relatively low-investment business that, besides the hours spent scanning, is pretty much passive income. The downside is there is absolutely no guarantee of return on investment or time frame for when you might make money.
Return on investment aside, there are so many other ways to make money selling on amazon that the biggest benefit of amazon arbitrage is learning how to use amazon as a seller.
Arbitrage is just the first of many amazon-based business models that I plan to develop. It’s my first step into the amazon market. Here is what I’m hoping to learn:
- How the FBA (fulfilled by amazon) process works
- What products sell and how fast they sell (specifically toys vs. clothes vs. food items)
- Basic inventory management (gotta manage all the buying, labeling, and shipping before you hand it off to amazon!)
If you’re curious about other amazon business models, check back or follower me on twitter to see the latest posts.
How to start Amazon Arbiterage
1. Set up an amazon seller account
You can set up an Amazon seller account for free. I set one up several months ago, but it hasn’t been used at all until now.
2. Get a scanning app
There are some amazing tools out there that you can use to scan and assess items. I recommend starting with the amazon seller app because it’s free, it doesn’t require a premium seller account, and it provides all the information you need to get started. We are going to try an upgraded scanning app in the next month, and I’ll review it here!
3. Hit up sales
I have wanted to start Amazon arbiterage for a long time now. What finally got me going was Toys-R-Us’s going out of business sale! Once I saw that, I talked to my spouse.
We set a budget for this business, downloaded the seller app, and headed to the store.
Toys-R-Us isn’t the only place to source products. You can buy from almost any retail chain, including Walmart, Target, TJ Maxx, even Costco occasionally has deals. You don’t always have to go to the store, you can also source from their websites.
a) Scan your item
Once you are signed in on the Amazon Seller App, you can simply click the camera icon in the top right corner to start scanning.
Once you scan the item, you’ll see amazon listings for that product. Hit the arrow button to click over to the product details page.
Once you are on the item page, the most important thing to check is the selling eligibility – lots of brands are restricted, so they can’t be sold by third parties. If the Selling Eligibility says you cannot sell the product, move on.
Note: There is potential for selling brand-restricted items on ebay. I’m investigating that and will post more about it at another time. This post is only about selling on amazon.
b) Check the product rank
Product rank is found at the very top of the listing.
The lower the product rank, the better your chances are of selling it. We aim for items with product ranks under 10,000 but we will go as high as 50,000. Again, the lower the rank, the better.
d) Check the profit margin
The seller app automatically includes any fees from amazon, but it does not include the cost of shipping your item to the amazon warehouse. A good rule of thumb is around 50 cents / pound, but that only applies over 1 pound. Anything under 1 pound ships at a rate of about $4.50.
After taking out the estimated shipping cost and the price you are paying for the item, are you still making a profit? To find out, click on the arrow on the proceeds estimate to see more.
Select “Amazon Fulfilled” to see the fees for FBA (which are higher than if you sell yourself) and put in a shipping estimate. I’d estimate $4 for shipping. This will decrease per item if you are shipping multiple items together in the same box. If you are shipping a really heavy item, it might be a little higher. It’s best to estimate a little high on the shipping, just in case.
The first item we purchased to sell on amazon was replacement tires for scooters. We were paying $6 for them – the list price on Amazon was $14.96 and fees for FBA were $6.42, so the gross proceeds were $8.54. We looked at this and thought, “Hey, that’s a good profit!” And purchased the remaining stock (three items total), totally forgetting to account for shipping.
Then, we went home and had to pay shipping. Amazon will have you ship your products to their warehouses. Some items ship together, while others might get sent to a different location. We had one item ship by itself ($4.50) and the other two were shipped altogether (about $4.50 total, or $2.25 a piece).
Shipping cut our profit margin down to just barely $3 per item. If we divide our profit ($3) by our cost ($6), we found out our profit margin is 0.5, or 50%. As newbies, we are aiming for 50% or higher on our profit margin, so this turned out to be a pretty good product!
e) Buy your item
If you are sourcing online, make sure you use a rebate program like ebates or swagbucks to get rewards on what you spend. Both online and in-store, we are using our credit card to make purchases so that we get cash back for our purchases.
4. Label and ship
Some items will require labels. For a newbie, I suggest purchasing some print-and-stick labels like these. Our items have not needed labels (so far).
When filling out the shipping info, it’s ideal to have a scale handy. We have a small kitchen scale we purchased for small shipping, and we use our household scale for larger boxes. We recently ordered this scale for use in our various online businesses.
FBA provides shipping information, all you have to do is print the shipping label. Right now, we just print that on our printer. As we scale the business, we are looking at purchasing a shipping label printer0 to help speed up the shipping process.
5. Amazon does the rest
The beauty of FBA is that you don’t have to take care of returns, exchanges, or any customer service. All you do is find and ship products!
What if it doesn’t sell?
I am very new to arbitrage, so I can’t tell you what the best course of action is, but here is MY plan:
- Wait even longer – I plan to give my products 6 months before I consider it “unsold,” at which point I will consider price reduction.
- Reduce the price – Remember that every time you reduce the price, you cut into your profits. My plan is to evaluate each product at 6 months and, if it is really not selling, I will reduce the price by $1.00
- Wait again – I’m planning to wait at least six months after the first price reduction to reduce again.
- Wait some more, then cut your losses – If an item doesn’t sell after a year, I’m not going to bother trying to fix the prices. I will leave it on Amazon and move on. Ideally, you will have enough other products that have sold to cover the loss.
You might be thinking, “Wait. I have to wait six months to make a profit on this?” It may not be that long, many sellers see sales within a few weeks. But YES. Businesses like online selling are a long-term game and you should be ready to settle in and wait!
You are not going to get rich quick doing retail arbitrage. If you are dedicated enough to turn it into a business, you will make profits in the long-term.
Or, maybe you will be like me. I don’t plan to do arbitrage for more than a year. I plan to do it as a side hustle until I feel comfortable with the selling process, then I want to try other selling methods.
Learn by doing
My goal isn’t to get rich doing arbitrage – it’s to make a few bucks and learn business skills that I can use. When I started thinking about starting a business, I realized I had two options. One – I could take out loans and go back to school and get a degree in economics or business management. Two – I could go start a business.
Amazon arbitrage is a really low-risk, low-effort business model. Along with blogging, it was my top choice for improving my entrepreneurship.
That said, arbitrage is really pretty easy. Give yourself a $50 spending budget and see what kind of a profit you can turn that into! Even if you don’t make a huge profit, learning to source items and sell them is a valuable skill.
And, if you’re really serious about learning to make money on amazon, check out the Selling Family. They have an amazing set of resources that are incredibly effective at teaching methods for selling on amazon! It’s a bit of an investment, but well worth the cost to create a viable side hustle.
So, can you really make money with Amazon arbiterage?
I don’t know yet! We just shipped our first order this week. I’ll be posting updates about how our sales go and changes we make to our business model, so check back!
Note: This post contains some affiliate links.