Beginner’s Guide to Selling on Amazon with Online and Retail Arbitrage

I had two copies so I was ok with losing one of them. The book was “The 4 Hour Body,” and I was ready to sell my extra one on Amazon.

I’d recently heard a story on Pat Flynn's Smart Passive Income podcast about a couple who was making lots of money buying toys and books and then selling them on Amazon. They were supposedly making $100,000+/year doing this so I had to give it a shot myself.

I enjoyed shopping and I had just wrapped up my degree in economics so the idea of arbitrage was very fresh in my mind, just not at this micro level. 

Of course, I was skeptical but hey, what did I have to lose?

So, I created a seller's account and listed the book.

Within minutes, it sold! 

There haven’t been more important “a-ha!” moments in my entire life. I was insanely excited even though I made almost no profit on the book. After shipping costs, packaging supplies (I did this part totally wrong) and lots of work to figure out how to actually mail it to the buyer, I made about $1.

I definitely worked too hard for that tiny profit but I have to tell you something...

That $1 was the best money I had ever made

It was much better than winning $100 on a scratcher I bought at Speedway two years prior (the previous height of my financial success).

It was exciting because it was much more than just the $1. I realized that I could learn how to do this and with some work, I could make real money.

So, I started going to retail stores every day after work and practicing something called retail arbitrage.

Retail arbitrage is the process of buying products from 3rd party stores like Target, WalMart, TJ Maxx, etc and then listing them on Amazon at a higher price. After product costs and shipping fees, you keep the rest as profit.

What is Retail Arbitrage?

The coolest part about this whole thing was that since I was utilizing Amazon’s fulfillment program, I didn't have to keep all the products I was selling in my house like I would if I was selling on eBay. Amazon would store my products and ship them to customers when they were ordered (I'll touch on this more shortly).

I’d scan products with my smartphone camera and an Amazon sourcing app and check what they were selling for on Amazon. I'd enter the buy price and I'd see how much profit I could make after costs. I'd also be able to predict how fast the items would sell based on the sales rank, the number of sellers and a few other variables.

After 2 months, I had surpassed $40,000 in sales with margins of around 25% ($10,000 profit).

Note: These results were possible because I had some money saved that I was using to buy inventory. These results aren't typical if you are on a shoestring budget. Your growth might be slower but the same concepts apply and you can scale over time.

Next, I realized that I needed help finding products to sell. I heard about something called online arbitrage which was basically the same as retail arbitrage except you'd find products from websites instead of physical stores. 

This was great because it allowed me to find products early in the morning before work and late at night after the stores were closed. Eventually, I even hired a virtual assistant from the Philippines and taught them how to find leads for me while I slept. 

I fell in love with the process and with the idea of working for myself. After a couple of consistent months of sales, I quit my job as a manager at a yarn mill in the deep south of Georgia and went full time into selling on Amazon.

The rest is history.

Since then I’ve been able to grow my internet business into many different streams, even beyond Amazon.

How Can You Get Started with Selling on Amazon

Does the idea of buying and selling other people’s products excite you? Does the idea of being your own boss and making real money online even if you’ve failed at other “make money” opportunities in the past sound like something you’d like to take a crack at?

If so, here is how to get started.

Let me start with some definitions though so you know what I’m talking about better.

Amazon Sourcing App: A mobile app that allows you to scan product barcodes with your smartphone camera to check things like the current price on Amazon, the sales velocity and how much money you could make if you bought and sold a unit. You will need one of these if you want to do retail arbitrage, but don't worry, the best one is actually free.

BSR: Acronym for Best Sellers Rank. Also called Sales Rank, this is a number associated with a product that shows how it ranks in terms of sales to other products in a given category or sub category. This number will help you understand how many units of an item you can expect to sell. 

Buy Box: On any given product listing there could be dozens of different sellers. The buy box refers to the seller whose product is first in line to be sold. When a customer selects "buy now" and doesn't review other seller options, the buy box seller is the one who gets the sale. Getting the buy box is critical and it is awarded based on factors like price, location and seller feedback. 

FBA: Acronym for Fulfillment by Amazon. This is Amazon’s inventory management program. 3rd party sellers can choose to send products to Amazon’s fulfillment center and the items are shipped only when the items are sold. This means that you could theoretically live in a studio apartment and have hundreds of thousands of dollars worth of your own inventory held at Amazon fulfillment centers across the country. #lifestylebusiness!

MF: Acronym for Merchant Fulfilled, which is the process of shipping products to your buyers yourself and not through the Amazon FBA program.

O.A.: Acronym for Online Arbitrage which is the process of finding products from 3rd party website and reselling them on Amazon for profit.

R.A:. Acronym for “Retail Arbitrage” which is the process of finding products from retail stores near you (Target, Wal-Mart etc) and reselling them on Amazon for a profit.

Scouting: A synonym for sourcing which is the process of finding products to resell.

Seller Fees: Selling on Amazon involves navigating through a lot of different fees and keeping profits after you pay them all. Read Amazon’s full list of seller fees here for a better understanding. You don't need to memorize these. Your sourcing app will show you these when you scan a product. 

Step #1 Start a Professional Amazon Sellers Account 

This is going to be your first real leap of faith.

Although you're more than welcome to create an “individual seller” plan, the professional seller plan is worth its weight in gold. Ironically, it's usually more expensive to do the “free” plan anyway.

If you’re serious about this, let this be your first real investment. The “professional plan” is $39.99/month and comes with a slew of benefits.

Check out the breakdown below and you’ll see why.

Individual account vs Professional Account on Amazon

I also want you to utilize the FBA program and not the MF option (at least not as much). The FBA program will give you much more control over your time and will keep you from filling your workplace with products. Trust me, if you have roommates or a spouse, this will cause friction.

When using the FBA program, if you decide to take a day off and go surfing (awesome if you do that btw, I’m jealous) you can do that. If you do MF, you have to prepare orders once they're made and it isn’t ideal or efficient.

This is one of the biggest benefits when you compare Prohibited Seller Activities as well since eBay lacks a real fulfillment program of their own.

Step #2 Read the Rules and Watch Introduction Videos

Although this part is a little boring, it’s important that you start off on the right foot.

When it comes time to create your first shipment, you will definitely want to watch Amazon’s tutorial videos. You'll see these when you log-in to seller central.

Step #3 Download an Amazon Sourcing App

Amazon has 562,382,292 products as of Jan 10th, 2018. That means there is a lot of data to sort through. 

With a scanning app, you can scan the barcode of any product and you will see:

  • Sales rank
  • Estimated fees
  • Estimated ROI
  • Estimated net profit
  • If Amazon is a seller
  • Current buy box price
  • Total FBA and MF sellers
  • Conditions being listed of each product
  • Category and if your eligible to sell the product
  • Images of the product (necessary for proper listing)

All of this data is used to make profitable buying decisions. 

Amazon Seller App

There are a number of options for Amazon sourcing apps but the free Amazon seller app is more than enough to start. Many large sellers actually use it instead of other paid alternatives because it is that good. 

Type in "Amazon Seller" into your app store (Android or iOS) and you'll find it easily. 

Enter your seller account log in and you'll be ready to go.

Also, I highly recommend you download an up to date Amazon sales rank chart that breaks down each category in plain english. 

Step #4 Scan Products Around Your House

Everyone has some extra stuff around their house that could be flipped on Amazon for a profit. 

The good thing is that you already paid for the products so you are going to get straight profit after fees. This is a great, low cost way to get your feet wet and get familiar with the process.

I recommend you start with books because they aren't usually restricted and they are easy to ship. 

What Makes a "Good Buy"

This is a VERY heavy question. Understand that what makes a good buy varies based on things like your capital, risk tolerance, time etc. A good buy for you may not be a good buy for someone else. 

For now, l'll give you some starting points assuming that you're on a tight budget and don't have tons of time to spend sourcing.

  • Profit margins of greater than 30%. Ideally, you want to aim for products with margins even higher than this in case your competitors drop their prices.  
  • Minimum net profit of $5/item.
  • Inventory will (should) sell within 2 weeks of listing.
  • Product cost below $50. You don't want to tie too much money up right away and you should save room for mistakes.

You'll adapt your own sourcing guidelines and rules as you learn from experience.

Don't beat yourself up over bad purchases and don't be afraid to sell mistake products back at cost so you can get your money back to reinvest in better products.

Click here to check out my ultimate product sourcing checklist to learn more about proper product sourcing methods.

Step #5 Create Your First Shipment

Once you find some items to sell, it's time to make your first shipment! 

Now, keep in mind that this is a learning experience. Don't get frustrated if it's confusing at first. 

You'll have to get packaging materials (boxes, tape, padding, etc),  remove pricing stickers, weigh your shipments, create shipments in seller central, print shipping labels and get the boxes picked up by a UPS driver or dropped off at a UPS location. 

The Amazon training videos are going to be very important during this phase. It would take a long time for me to cover this process inside and out so I will direct you straight to the source to learn more.

There are also a lot of great tutorials on YouTube. Just make sure that the videos are up to date. 

Step #6 Continue Sourcing and Monitoring Sales

You're going to make a lot of mistakes when you start selling on Amazon. Don't beat yourself up. Consider this the tuition you pay to learn this money making skill. 

Monitor which items are selling and which aren't. Identify why and repeat what works and avoid what doesn't. 

Again, be patient. 

There are SO MANY things you will learn along the way by doing. Courses, coaching and all that is fine but the best learning will come from your own real life experiences. Both your successes and mistakes will make you better each day so take them all in stride. 

Step #7 Reinvest Earnings in Inventory and Expand Sourcing Methods

Selling on Amazon is a business that requires constant reinvestments of your profits.

You can turn a $1,000/month business into a $100,000/month business if you consistently reinvest more than you take out.

This means that you aren't going to take a profit right out of the gate (at least not if your goal is a full scale business). When you get your payout from Amazon, reinvest that money in more products.

If you're looking for the "get rich now," or "get paid tomorrow," approaches that are peddled online, this isn't going to be fore you. It takes time but it is worth it. 

Also, you should start expanding your sourcing methods from retail arbitrage to include online arbitrage. There are plenty of tools for online arbitrage (free and paid) available but you don't need them to get stared.

Here is a large list of sites for online arbitrage that you can start finding products from.  When you are ready to invest in a tool, check out Tactical Arbitrage first (it is a game changer). 

Once you've mastered both arbitrage methods, you will eventually want to scale your business into wholesale and private label.

Want to Learn More about Selling on Amazon?

I run a free Facebook group called FBA Today that allows sellers of all levels to connect with each other and get their questions answered. Feel free to join, just allow up to 24 hours for approval. 

About Nate McCallister

Nate McCallister is a full time blogger focused on helping others learn the ins and outs of e-commerce and digital marketing.