In today’s post, I want to go through the first steps of starting a new online arbitrage business.
I think a lot of people jump into selling on Amazon using online arbitrage as a base point. But I do think a lot of people get it wrong, make mistakes, and also I think a lot of people get disillusioned and give up.
Before really getting into any decent profit a lot of the complaints I get with online arbitrage is there is too much competition, there’s too much undercutting, I can’t find enough profitable items. My stock is taking too long to sell. Now, all of these issues can be solved by running this business correctly. If you’ve got these problems it means you’re not doing it right, as far as I’m concerned.
I wanted to create this post to show you what I think is the best way to run this business. It means you’re in profit, you’re going to make a lot more profit, and you’ll be able to build a long-term sustainable business this way. If you’re just getting started and it’s not quite working out the way you want it to, or you’re about to get started, then this is a really important post because I think is going to help you a lot.
To kick it off, let’s very briefly cover what online arbitrage is.
It’s a very posh sounding name, but ultimately all it is is finding cheap and discounted items online via retail websites, buying those items, and selling them on Amazon using the FBA method. The principle behind this business is simply a method of filtering the data that you can find online, to make a factual data-driven decision on what to buy in order to maximize your profits on Amazon using FBA. Now, the backend process is relatively automated and taken care of with Amazon. All we have to concentrate on is buying well. Everything else is just a procedure. It’s straightforward, it’s easy to learn.
The real talent and the real key comes in buying and making well-thought-out buying decisions. Once you hit that right, then it’s just a case of rinse and repeat. You really can semi-automate this, scale it up very easy and make an awful lot of money. But there are some principal mistakes that a lot of people make and I see it time and time again. I see the sellers on Amazon. It’s obvious they’re new sellers, and they’re making those mistakes time and time again. It’s always the new sellers.
If you’ve been watching my YouTube channel for a while, you will know one of my primary pet hates is unnecessary price cutting or penny-pinching. Is usually a habit brought over from eBay. Because a lot of eBay sellers come on to Amazon and try amazon out using the arbitrage process but are effectively still in the eBay mindset, and bring their eBay habits to Amazon. That’s your first major mistake. Amazon is not eBay. It does not work the same way.
In fact, Amazon’s major strengths is it’s not eBay. It does not work in the same way. If you are an eBay seller or you have been an eBay seller and you’re looking to get started on Amazon, try to look at it with a fresh insight and a fresh perspective. Because if you bring your eBay habits to Amazon, you will cause yourself problems. The major issue comes down to competition.
If you stop reading right now, take note of this one sentence as being the primary sentence of this entire piece. And if you listen to one thing, listen to this.
You do not need to be the cheapest on Amazon.
You don’t need to be a penny cheaper than the other guy on Amazon. You don’t need to be two pennies cheaper than the other guy. You don’t need to be $3 or £5. You just don’t need to be.
If you match the lowest price of the other FBA seller, not the other merchant fulfill seller, but the other FBA seller on Amazon, you will share that buy box which means if there’s just you and one other person, every other person that clicks on that listing will see your item on the buy box. Which means you’ll get 50% of the traffic and 50% of the sales. If there are three of you, then you’ll get every third one. That means you can keep the price higher, and still get the sales. Because, ultimately, what happens when you go two pennes cheaper than the other guy, he’s going to come back and say, “Son of a–” And go two pennes cheaper than you.
Then a new seller will come in and say, “Oh, I need to be the cheapest.” So he’ll then be five pence cheaper than you. If you think you’re going to undercut the current seller by two P and remain the cheapest, you’re dreaming. Because the next guy will come and do the same thing to you. By undercutting the last person by two pence or five P. You’re not just taking off two pence or five P, you’re initiating a steady decline in profits.
Because the next person will go, and the next person will go, and it will slowly go down and go down and go down, and that will keep going down until the lowest common denominator, until the person who is willing to take the least profit. Or the person who is desperate enough not to be left holding on to the stock and needs to get rid of his stocks, he’s going to go even lower to the point where maybe he doesn’t even have profit. Or he’s barely breaking even just because he’s desperate to get rid of his stocks or worried he’s not going to get his money back.
Don’t do that. Do not do that.
You’re not helping yourself. You’re pissing off other experienced sellers who are trying to make real profit. They’re making the buying decisions based on the profit that they want. You are then coming in and undermining that listing which provokes other people to do the same which only results in one thing. You are making less money, and most of the time it means you make very little.
What is the point? You still going to go out buy something, have it delivered, label it, repackage it, and send it in. There is an element of work involved in this. If you end up undercutting each other to the point where you’re not making any money, you might as well go and get a job in McDonald’s. Because you’re going to be working for less than minimum wage. That is not what this business is about.
There are two different types of people that undercut. One, is the person that I’ve described, the beginner. They’re the people that have just started. They usually buy one, two or three items, and they go straight in and undercut people. Now the second type of undercutter is a different scenario, these are large scale corporate companies that are buying on massive wholesale orders. They usually have their own warehouses and truckloads coming in on a daily basis. They’re going to be pricing to an algorithm. They’re going to be using re prices, and they simply have far too much volume to be able to individually price their listings, and look at the competition and make educated pricing decisions.
So it’s all algorithmic. They want to dominate the listing. They want to go in there. They’re quite happy to make 15% or even 12% or 10% profit margin because they’re selling thousands of items a day. If they can make a pound or a dollar net profit on every single item, they’re golden, because they’re making thousands of dollars a day. That is their business concept, and it works for them because it’s sheer volume. Massive volume.
But that’s not what we’re doing. We’re not in that business. They are not our competition. If those sellers have those items, you either have to assess whether you can make money at that point. And quite often you can, because their wholesale price is quite often not as competitive as an online arbitrage item. In a 70% or 80% sale, you’re going to get items cheaper than wholesale. You might be able to match that price. If so, great. Otherwise, if you have got those guys with 500 items in stock and it’s below what you can make a profit on, then just move on. There’s plenty more opportunities out there. So you don’t have to compete with those guys.
Hopefully, I’ve got that point across to anyone that may be of thoughts about undercutting their competition. Now that I’ve got that little rant out of the way, let’s look into the mechanics of making a buying decision. A lot of the time the tool I use for my online arbitrage is FBA wizard. It’s a piece of software that you can use that massively speeds up the process of looking and highlighting profitable stock that’s available on live for you then to sell on Amazon. Let me be clear, you don’t need this software to run the business but it’s a good tool when you start scaling up. Because you couldn’t search and filter through a much larger amount of potential stock than you can on your own.
I’m showing you what I use, but if you’re just starting out and you have a relatively limited budget, you don’t need to get this straight away. You can do this yourself manually. This is a time saving and scaling tool. This tool should be paid for with your arms and profits within the first month. There’s no reason why you shouldn’t be making at the very least enough to pay for this, and to be honest with you should be 10 times more in your first 30 days without a problem.
If you’re just getting started I would suggest practice without this first, get a few purchases under your belt, get used to the buying and selling process. Then you can grab this once you start scaling. If you feel like you’ve got a good idea of the online arbitrage process, there’s a link in the description box below for FBA wizard. It’s my affiliate link, so I’ll get a small commission from FBA wizard for recommending you and sending you over there. It doesn’t affect the price you pay it’s exactly the same anyway, so that might be worth bearing in mind.
If, however, you’re just getting started and you still got a bit to learn in this process, then my advice is just hold off. Definitely, something that will add a lot more profit to your business and a lot more scale, but wait until you have a bit more experience when you can make better a more effective use of it.
Coming up in part two of this series I’m going to be explaining the mechanics of a buying decision. How to understand a keepa graph, the key elements that make up a consistent effective buying decision. When some deals look like a good buy and are definitely not. I’ll show you how to understand the whole supply and demand concept.
Any questions let me know in the comments.
FBA Wizard Arbitrage Tool: https://wholesale-help.com/FBAwizard
FBA Academy Coaching Course: https://wholesale-help.lpages.co/fba-academy-lives-session-recordings/
