Have you ever heard a about any of the legendary eBay millionaires? One of a select group of people who would cram their houses full of bits and bobs that they bought cheaply and are selling for a profit on Ebay. Turning junk into cold hard cash.
Well, Amazon is the new Ebay and it is filled with even more opportunities to make money than there ever was in those early Ebay years.
Amazon is taking over the world. It has got the point where a lot of people just go straight to Amazon, search for what they want and buy it. Never bothering to look elsewhere. They’re thinking:
“Even if it is a bit cheaper elsewhere I’d probably still use Amazon, so why waste my time shopping around?”
99% of the time this makes sense. But sometimes, just sometimes that item you’re buying is a lot cheaper elsewhere. So much cheaper that you can buy it and relist it on Amazon and make a profit even with all the fees involved.
The best part? You don’t actually need to hold any stock. Once you’ve purchased it, you send it to an Amazon warehouse (through a system called Amazon FBA) and they will take care of the order processing and customer service.
Skeptical? Well in this post I’ll be your guinea pig and try out some Amazon FBA retail arbitrage.
I have a lot of experience with Amazon FBA (I have a table tennis business that has been running for a while, we currently have the number one best selling table tennis bat in the UK) but this was the first time we had ever tried doing some straight up retail arbitrage.
The concept is simple: find a product that is currently listed and selling on Amazon but that we can buy for much cheaper. But how do we go about finding these products?
Based on my experience with Amazon I knew that in order to make a profit any item we purchased needed:
- To be under half the price that it was listed for on Amazon. The fees quickly add up so to make any money we need a really good margin.
- To have at least a few reviews and a ‘decent’ seller ranking on Amazon. We didn’t want to be holding on to stock for a long time so we would limit ourselves to items that were currently already selling well.
- To be not too bulky. If the item is too big the storage and postage would quickly become too expensive.
After a bit of thought, we came up with two ideas for finding these items. We could contact wholesalers and get a wholesale discount, or we could find clearance offers at other retailers.
The latter sounded easiest and wouldn’t require a massive minimum order, so we started hunting. After a bit of searching, we came across an app called Idealo.
It was exactly what I needed. An app full of hundreds of items on offer that told you the price each item is on different websites – including Amazon. We just had to click through each one till we found one that fit our criteria.
The His and Hers Board Game
One of the items we found looked perfect. The His and Hers board game.
On the Debenhams website it was on a clearance sale at £9 each. But at Amazon it was for sale at £24.5. That’s a big difference.
It also looked like it was selling well on Amazon. It had 60 reviews and was ranked about 9,000 in ‘Toys and Games’. That’s a popular category and my guess was that a 9,000 ranking would equate at least one sale a day. That was a guess, but it was an educated one based on the items we already sell on Amazon.
Everything was looking positive, so the next step was to get into the nitty gritty and work out if we could make any money from this arbitrage. Amazon has a handy FBA calculator which will calculate for you how much it will cost you in fees per sale.
So according to this calculator the cost of one of the board games being sent from the Amazon warehouse to the customer is £5.85.
Now a big note for anyone in the UK. VAT. If you’re a normal person you won’t be registered for VAT. Which is good and gives you a huge advantage against other businesses. It means you won’t need to give 20% of the sale price to HMRC. But on the downside it does mean that those referral and fulfilment costs aren’t quite correct. They don’t include the 20% VAT.
So the costs would be:
£5.85*1.2 = £7.02.
But remember, that is just the costs of sending it from the warehouse to the customer. There are a few other costs we need to think about.
- The cost of sending the product from you to the Amazon warehouse. I originally estimate this as £1.5. This is really going to have to be a guess I’m afraid, but it can be an educated one and as you do more and more items you will get a better idea.
- Wastage/returns. Historically my return rate is about 1%, so let’s assume 2% to be safe. That means we need to factor in another 35p cost for wastage and returns.
When we eventually ordered four of these games, the shipping to Amazon was £5.08. So £1.27 each.
Now we have all our costs:
£9 for the board game + £7.02 in fees + £1.27 in shipping + 35p in wastage = £17.64
If we slightly undercut the current cheapest seller and sell at a price of £24 that is £6.34 profit per board game.
There is one other cost you need to think about that depends on your Amazon seller plan. There are two plans you can choose from, the Pro account at £25 a month, or the basic plan which cost 75p a sale. Go for the basic one until you’re selling 34 items a month, at which point the Pro works out cheaper. Once you start selling a lot of items this cost becomes pretty negligible.
Great, this board game looks like a good deal (and it also it reminds me of the ridiculously sexist board game they designed on The Apprentice)! We purchased four for £36 with free delivery to my flat.
Repackaging and Sending To Amazon
Sending the items to Amazon proved to be really easy.
We unpacked the package and checked each of the four board games for damage.
After signing up to Amazon Seller Central, we added a new product. The whole process only took a few minutes as Amazon already knew all the dimensions and details of the His and Hers Board Game.
We then created the shipment, which simply involved specifying how many we planned to send and following a few steps.
After the four board games had arrived at my address we checked unpacked them and checked for damage.
Back on Amazon Seller Central we came to a choice about labelling. Each item needs to be labelled. The label includes information not just about the product but also about the shipment and seller so that Amazon can keep track of who all the stock in their warehouses belongs to. You can either pay Amazon 15p an item to do it for you or you can label them yourselves. We chose to do the labelling, in which case Amazon give you an A4 printout of the labels.
We do a lot of Amazon labelling so already had plenty of print-ready label paper. I normally purchase these Blick 63.5×38.2 Label Paperat £9.46 for a 100 sheets. That’s 0.45p a label.
We just put it in the printer and stuck one label on each board game.
Back on the seller central on the final page we were faced with this:
Amazon sorts out the shipping for you. If you accept their charges it will give you another label to print off. The label is a different size to the ones for the individual board games. We use these unbranded print-ready sheets at £5.99 for 100 sheets or 1.5p per label.
We put the four board games back in the same package they came in and stuck the shipping label on the packaging. To send it we found the closest UPS drop off location. Mine happened to be about a one minute walk from the flat. We dropped it off and about a week later it appeared in our Amazon seller account.
And that’s it. You then wait until someone buys your product while busily hunting for the next in the meantime.
Even just doing that test of four items for only about £20 profit, it was clear there is a lot of potential to scale and make a decent income from Amazon FBA retail arbitrage. It didn’t take long to find a few items that fit our criteria and a quick Google search will find anecdotes of people make six figures a year from it.
But it’s not for me and I won’t be doing anymore.
As a business, it didn’t excite me. It is a pretty straightforward time for cash business and is not particularly creative. Personally I prefer to spend my time creating my own brands and building a much more passive income style business, such as with my table tennis brand.
I do think though, that retail arbitrage is a good starter side-business for someone who wants to earn an income quickly. It requires only a small investment and you can put as much or as little time into it as you want.