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Online arbitrage is the process of buying inventory from one site to resell on another (usually Amazon).
To help school me on this side hustle is Chris Grant, a longtime Amazon seller and the founder of ClearTheShelf.com and OAChallenge.com.
Chris has been involved in the online arbitrage space for the last 10+ years and is currently selling $75,000-80,000 per month.
In this episode, Chris explains the systems he’s built and the tools he uses to help him find more “winners”, minimize the risk of losses, and how anyone can make money with this side hustle in just 1-2 hours a day.
Tune in to The Side Hustle Show interview to learn:
- Where Chris finds inventory to sell on for profit
- The tools and tech he uses to automate and streamline his product sourcing
- How he minimizes risk on the downside and some hacks for finding discounts when buying in bulk
$35,000 in 3 Months … From One Product
Last Q4, Chris said he “just happened across a product” anyone would see in the isles of their local pharmacy.
He always has the mindset of trying out different products to see how well they’ll sell, so he bought some of this particular product and listed it on Amazon.
The test went well and all of the products sold quickly, so Chris picked up some more.
Again it sold fast, so Chris said he decided to do something called “merchant fulfilling” for this product. This means he started fulfilling the orders from home instead of having Amazon do it to cut out a step in the process.
The product continued to sell very quickly. So, Chris started searching every store online that might sell it, and was buying every single item of this product he could find.
By the end of Q4, Chris said he had grossed $140,000 in sales with a profit margin of around 25%. That means he netted somewhere in the region of $35,000 in three months from just one product.
The Importance of Testing Products
“I am someone who believes in going wide and not deep on products so that we can limit our downside risk,” Chris told me.
Chris prefers to test products in small numbers to see how quickly they sell before committing to a larger number.
When something is clearly selling well, he doesn’t hold back. Chris will find as many of a product as he can and “throw gas on that fire.”
Merchant Fulfilled vs. FBA (Fulfillment by Amazon)
For some products, Chris opts to fulfill orders himself from home instead of sending the products to Amazon to ship for him.
He said it’s quicker doing this, as you don’t have to package and send the product to Amazon. You still have to pay for shipping, but the margins can be a slightly better since you’ll save a little on Amazon fulfillment fees.
What Kind of Profit Margins Can You Make with Online Arbitrage?
Back when arbitrage was becoming a thing, Chris said sellers used to work to something called the “Rule of three.”
This meant, if you bought something for $5 to resell, you needed to sell it for $15 (a multiple of 3). This was because you would have to pay $5 in Amazon fees, and you’d want $5 leftover as profit.
Times have changed, however, and Chris said most sellers are now happy with somewhere between 20-30% ROI on their investment.
This powerful thing about selling on Amazon is how fast you can churn your inventory. Chris said large retailers like Target or Walmart may churn their inventory four or five times a year.
If you know what you’re doing when selling on Amazon, you can churn your inventory 1-2 times a month. This means you can reinvest your profits quicker and scale up quickly.
What Are the Best Online Arbitrage Product Categories to Start With?
For new sellers, Chris recommended the home and kitchen category, along with patio, lawn and garden items. Items like sheets, dinner plates, and other homewares sell quickly.
Chris said the automotive and tools category is also a good one for beginners. You will have to show Amazon you have some sort of storefront to get this category ungated and be cleared to sell in it though.
For most categories, you will also have to show Amazon receipts demonstrating that you’re buying 10 or more units at a time from legitimate distributors to get ungated and be able to sell your products.
Once you’re ungated in a category, however, you have more freedom to sell what you want and do not always have to show receipts for your inventory.
Sourcing Products Online
For new online arbitrage sellers, Chris recommended spending some time doing “manual sourcing” so you fully understand the process before relying on software tools to help.
He also pointed out that a mistake people often make is looking in the clearance section as they think that’s where they’ll find bargains.
Chris explained that this is often the worst place to find items online to resell as they’re typically available across the country at a discount.
Ideally, you should look for items being sold in temporary sales. This enables you to pick up items at a sale price, that you can sell when they return to their normal price in the future.
Chris also said you can often buy items at full price and sell them for a profit. This is because people will pay for the convenience of buying an item on Amazon and having it delivered quickly.
Online Arbitrage Markups and Margins
Chris said the margin you’re looking for on items varies depending on the price, the size of the item, and some other factors.
Generally speaking, however, if you’re sourcing small and light items to sell for around $7, Chris said you should expect to pay $1-1.50 for those items.
For items in the $40 range, Chris said you need to be sourcing those items for around $25.
This kind of margin is enough to provide a cushion if the price diminishes a little, while still putting enough profit in your pocket to make it worth your time.
Online Arbitrage Tools and Software
After sourcing some products manually so you understand the process, you’re going to need to use some tools to automate and speed up the sourcing process.
The main tools and tech Chris uses are:
- Amazon Seller Account – You need to create an Amazon seller account to use their platform and some of the other tools Amazon provides.
- RevSeller – This has an on-page FBA fee calculator to help you quickly calculate an estimated profit when you’re sourcing.
- Keepa – This tool shows the price history of products on Amazon and other sales data. It enables you to limit your risk by looking at the highest and lowest a product has sold for, as well as finding out a product’s bestseller rank*.
- TacticalArbitrage – Chris said TacticalArbitrage is the “Cadillac of software for online arbitrage.” This is the tool that scrapes and compares product data from online stores to save you spending time looking manually. It will go through thousands of items across multiple stores and pull out the potential winners for you in a matter of seconds.
*Chris typically tries to stick to products in the top 3-4% of best-selling items in a category. To help you calculate this, he’s put together a sales rank chart of the best-selling items on Amazon here.
Do Online Stores Let You Buy in Bulk?
When you find a product you’re sure you can resell for profit and try to clear the shelves of an online store, don’t be surprised if you run into technical problems.
Chris said Target, in particular, does not like it when you buy up all of their loss leaders. If you try to buy too many items you’re going to get blacklisted and blocked from buying at Target online.
He’s also had to speak with the fraud department at a couple of sites to explain why he’s buying so many items.
It’s fair to say that a lot of stores do not like people buying up all their stock to resell. So, you’re going to have to accept being banned from some sites along the way.
But there are plenty of places that do allow resellers to buy in bulk, so don’t be deterred.
Discount Stacking for Maximum OA Profits
Stacking discounts is another way you can bring down the price when sourcing items online, and this is something TacticalArbitrage does for you.
If there are store discounts available, discounted gift cards, cashback offers, etc, TacticalArbitrage will bake all of these discounts into the price to help you achieve a better ROI.
Chris said he has friends that do enough in just credit card cashback each month buying products online to cover their mortgage, car payments, and warehouse leases.
Looking for discounts is almost certainly worth the time, as well as the cost of TacticalArbitrage as this is the tool that helps you find them.
For an alternative tool to help find discounts, Chris actually built a Chrome Extension called RevROI, which lets him know what discounts and cashback are available for sites he’s on.
RevROI usually costs $4.95/mo, but Chris provided me with a link so Side Hustle Show listeners can get access to it for free.
The Logistics of Online Arbitrage
There are a couple of different ways you can handle the logistics of packaging and selling the products you’ve sourced.
The first is to have everything shipped to your door. You can then package up the items individually, put a label on the package, and send them all off to Amazon to handle shipping the items when they sell.
Chris said you can send your items off without a label and someone at Amazon will label them for you. But he prefers to label his products himself so he knows there is no chance of them being mixed up with other sellers’.
The other option — for those with less time on their hands — is to send all of your products to an Amazon prep company and they’ll do all of this for you.
Chris said you can even pick a place in a tax-free state like Oregon, New Hampshire, or Montana and you won’t have to pay sales tax.
You’re typically looking at between $1.25-1.50 per unit to use a prep service. Depending on the rate of sales tax in your state, there is a good chance you’re going to be able to offset that fee while saving yourself the hassle of packing and labeling your products.
How Much Time Does it Take to do Online Arbitrage?
If you’re thinking about getting started doing online arbitrage, “an hour or two per night can be pretty profitable,” Chris explained.
This isn’t going to be enough time to build a $100,000 business within a few months. But you’ll learn the ropes and start to gain some momentum learning which products sell well and be able to reinvest some of your revenue.
For Chris, doing this full-time he spends a lot of his time sourcing new products. He also has a virtual assistant helping source as he’s spending a lot more time working on his software products and teaching other people how to do online arbitrage.
In a typical month, he sells $75,000-80,000 worth of products on Amazon.
Surprises and Losses Along the Way
Chris told me he doesn’t have many stories about big losses as he tends to limit his downside risk.
He has plenty of stories and surprises of the good kind though. “For a time, we sold way more adult diapers than I ever felt comfortable selling,” Chris told me about one of his biggest surprise sellers.
Chris has also seen huge volumes around items he never thought would sell so well. Things like calculators, toys, and weird electronic devices that are hard to find.
Selling on Other Marketplaces
Amazon is the largest online marketplace, but it’s not the only place you can play online arbitrage and resell your inventory.
Chris sells items on Facebook marketplaces now and then, as well as selling some electronics on eBay. He’s thinking about testing out Walmart’s online marketplace but hasn’t done so yet.
What’s Next?
“The biggest thing for us this past year has been the OAChallenge,” Chris told me.
In the challenge, Chris teaches people everything he’s learned about online arbitrage in the last 10 years — in 14 days.
He’s had some great success stories and said he finds the experience very rewarding.
Chris’ #1 Tip for Side Hustle Nation
“Focus on one step of the ladder at a time.”
Links and Resources from this Episode
- ClearTheShelf.com
- OAChallenge.com
- RevSeller
- Keepa
- TacticalArbitrage
- RevROI – Usually $4.95/mo, but free for Side Hustle Show listeners.
- Reselling on Amazon – Retail arbitrage best practices
- $100 to 7-Figures: Amazon FBA retail arbitrage case study
Sponsors
- Freshbooks.com – Start your 30-day free trial today!
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