What does Retail Arbitrage really look like?
Lessons learned early on with Retail Arbitrage and selling on Amazon
I have not been doing RA(Retail Arbitrage) long but wanted to share some things I have learned in the first few weeks. Hopefully some of these things can help you on your RA journey. This is all based on self fulfillment. I will touch on FBA (Fulfillment by Amazon) in a later post. You can check out my other posting on my first arbitrage experience here.
Amazon gives you a shipping allowance for all items sold. Know up front that this does not cover actual shipping costs. I learned this the hard way. I sold an item that had a shipping allowance of $5.49. Actual shipping was $15.85. OUCH! Let me tell you my wife was not happy with that one. I had lowered the sale price of the item thinking I was going to drive sales of that item. It was still double what I paid for it. I figured it wouldn’t have cost more than $6-7 shipping and I would still make a few dollars profit. Lesson learned. Try to get better at estimating shipping costs and figure that into the sale price. If that amount is not going to be competitive, you may want to rethink purchasing it.
This was one of the first lessons I learned. Shipping books by media mail. The post office clerks won’t tell you about this at the counter. Our post office flat out told us that they were instructed to only provide this method when asked. I suppose it is to discourage folks from trying to get cheaper shipping for non-media items. Here is the truth. My first book, I shipped standard USPS (cheapest they offered). That cost me $5.45 which was more than the $3.99 allowance that Amazon gives you. Another loss in shipping. Going media mail, most of my books are shipping for about $3.09. This will give you a cushion to also cover shipping containers. I have been using padded envelopes and packing sheets of cardboard on both sides of paperbacks to allow more protection. I do not believe it makes a lot of difference on the package type. Weight will play a small factor. I have tracked the packages and they seem to arrive within 3-5 business days. Only time will tell if this is the norm.
Choose your container
Some of my items do not fit in flat rate USPS boxes. Where a medium flat rate through USPS is between $6-8 to ship, large flat rates jump up to about double. If they don’t fit into any of the flat rate boxes, weight and location you are shipping will play a factor. If my items would have fit in a medium flat rate box, I would not have lost money and may have still profited a buck or two.
Individual vs Professional Sellers Account
When choosing the type of account you start with Amazon, there is one major factor to consider. Do you believe you can hit that magical 40 item sales per month mark? The reason this is important, the individual account has no monthly fee. It does, however, incur a $0.99 per item fee on everything you sale. You can avoid paying this fee if you chose the Professional account. Professional accounts are $39.99 per month. Simple math will tell you if you sale more than 40 items, it is well worth the value. There are other benefits to the Professional Sellers account that I believe bring value. The ability to create multiple listings with spreadsheets, more reports, and the ability to utilize API functions for those of you that are technically inclined. Since I was not 100% sure of how successful this venture would be, I chose to start with the Individual Sellers account. I have only sold 9 items in about a week and a half so there is no question the Individual Sellers account was the right decision. I do recommend starting as an Individual Seller in the first month until you get a few sales under your belt. I am thinking if I do switch to FBA, there are benefits with that model that I suspect will increase sales. I just don’t want to fork out $39.99 per month unless I am sure I will surpass that 40 item a month sales mark.
You will loose
It is inevitable. You will lose money on items. You will experience the sting as you go to the post office and pay shipping that exceeds the cost of your item. I keep a spreadsheet that shows all my cost breakdown along with revenue generated. It gives me the ability to be reminded of gains and losses on a per item basis. It also gives me a view of my overall success/failure. Right now I am still sitting at a profit overall even though I have lost on a couple items. It is just our nature to focus on losing $5 on an item because of shipping and letting that overshadow the $30 you made profit on a 28 cent book. Keep good records and know your true overall profits/losses.
- Retail Arbitrage is something anyone can do
- Think of the money Amazon gives you for shipping as an “allowance to go towards shipping”. Don’t expect that money to cover your shipping costs.
- Figure the difference in Amazons shipping allowance and estimated actual shipping costs into the selling price of your item. I recommend adding $10 minimum into your item to cover extra shipping costs.
- Consider making smaller purchases in the beginning that might fit into a USPS flat rate shipping container.
- Send CDs, books, etc. through Media Mail. Make sure to tell the post office clerk that is how you want to ship these items. Go to the USPS website to review the guidelines of what can be shipped via Media Mail
- Understand the pros and cons of Individual vs Professional Sellers accounts. Ask yourself “Do I think I will sell more than 40 items per month?
- Keep good records to know where you are as far as profits/losses.
Well, this was just a high level view of my retail arbitrage experience with Amazon. I hope it at least painted a good picture of the process and gets you motivated to try something new. After all, you only win by doing!