July 8

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15 Common Retail Arbitrage Sourcing Mistakes


It's good to learn from your mistakes. It's better to learn from other people's mistakes

Warren Buffet

Retail arbitrage is thriving and isn't going anywhere, don't listen to anyone who says otherwise. However, there are several ways that you can make retail arbitrage work against you. Mistakes that can lead to wasting time, losing money or making far less than you should.

In this article, we'll dive into each of the 15 common retail arbitrage mistakes that we see sellers make when sourcing products to resell on Amazon.

#1 Not Checking if You Can Sell It

Amazon's brand and category gating can cause you to waste money on items you won't be able to sell. 

Pro tip: Cross sell these items on another marketplace like eBay if you already purchased them. 

How to Avoid It

Always use a scanning app, preferably the Amazon seller app with your credentials properly logged in. You'll be able to see if you can or can't sell an item. 

#2 Not Checking if It's an IP Claim Risk

Just because the Amazon seller app says that you're allowed to sell it doesn't mean that you're not at risk for the brand filing an IP claim against you. These are nasty notifications that put your account health at risk and might lead to you sitting on a bunch of items you can't sell anymore. 

How to Avoid It

Invest in a 3rd party tool that shows you warnings of brands that have been found to report IP claims. IP Alert is the tool we created for online arbitrage sellers but it also supports mobile searching now!

#3 Not Checking Product Condition 

The first item I ever sold was a $300 camera and it was returned and my account was immediately dinged for it. I didn't pay attention to the fact the item had been reshelved and I didn't notice that the camera inside the box had been handled and was clearly not brand new like I advertised. 

How to Avoid It

(1) Focus on sourcing brand new items from sources that provide you with great supporting evidence with itemized receipts.

 

(2) Always underestimate product condition when in doubt.

 

(3) Sell most used items on another marketplace like eBay if you feel uncomfortable. Selling used items at scale is not ideal for Amazon. 

#4 Comparing It to the Wrong Item (Quantity)

Very often you'll scan an item and your eyes will light up when it seems wildly profitable only to find out that the price was higher because more than one unit was sold. 

Now, multi-packs can be excellent but you will need to factor the true cost of the purchases needed to fill them. This means multiplying the cost of one times the amount per bundle. Check first to see if there is a listing for single units (there usually is) and see if it's not better to sell that way. If the numbers are similar, I'd lean towards the single packs to save energy and time creating bundles. 

How to Avoid It

Be mindful of quantity. Practice "defensive sourcing," and always assume a product is a multi-pack until you prove otherwise. Don't let your emotions blind you from seeing the data.

#5 Comparing It to the Wrong Item (Size, Color or Model)

Another simple but common mistake. Size, color, model number or any other distinguishing factor that changes the product's ASIN need to be closely evaluated. The slightest differences can see massive changes in price and demand. 

How to Avoid It

Be mindful of size, color and model. Practice "defensive sourcing," and always assume a product is a mismatch until you prove otherwise. Don't let your emotions blind you from seeing the data.

#6 Misinterpreting Sales Velocity Due to Changing Seasonality or Holidays

Sales rank is an awesome tool but it can be very dangerous as your main guide. One of the reasons is that seasonality impacts estimated sales. If a product is going out of season and you purchase it near the height of its demand, by the time your products arrive at the warehouse the units selling per day could be dramatically different. If you sent in a large amount of items, you'll be stuck with this lower velocity for quite some time.

In addition to that, other sellers will liquidate their products knowing that people won't be buying as many at full price. There are a few random outliers like certain holiday candies that people actually want to eat all year round, but most holiday or seasonal based items drop in demand and average buy box price. 

Example #1 Products Sourced in January will show an inflated sales velocity estimation while products sourced in July will show an understated sales velocity. 

Example #2 Summer products like grills, swimming products and summer apparel will show overstated sales velocity in August and understated sales velocity in March.

xA Seasonal Variation

How to Avoid It

(1) Always check Keepa charts before making a purchase. 


(2) Check as far back as possible.


(3) Never blindly trust sales rank. 

#7 Misinterpreting Sales Velocity Due to Sub Category vs. Main Category Estimations

Many experienced sellers have a general idea in their heads of how many of an item will sell at a given sales rank in a main category. Unfortunately, many times they don't notice that the sales rank they're viewing is a sub category and the sales rank will represent a much smaller number of estimated units sold. 

If you see a book with a sales rank of 67 in a sub category like Finance and calculate the estimated units that will sell based on a book with a sales rank of 67 overall in Books, you'll be tremendously disappointed. 

How to Avoid It

(1) Always double check the product category.


(2) Use Keepa to see actual sales.

#8 Misinterpreting Sales Velocity or Future BuyBox Price Due to a Product Being Replaced with a Better Model

Sometimes the launch of a new version of a product can send the demand for the originally one into a tailspin. This is particularly common with electronics.

Fortunately, this is not a common issue you run into but it is something to be aware of. 

How to Avoid It

(1) Be skeptical when a popular item sees a sudden drop in price.


(2) Google for more information on pending updates if in doubt. 


(3) Be mindful of the products and brands that regularly replace their products with new models. Some do this much more than others (Apple, Amazon, etc). 

#9 Not Leaving Wiggle Room for Price Changes After Fees

Although I support taking smaller margins on products when it helps you scale, there are some items that are simply too close to being in the red to bother with. 

I highly recommend that you make sure that every item you sell nets a minimum of $3/unit. Less than that and you can quickly lose any profits or go take losses on what you've purchased if a competitor gets aggressive.

However, to ensure that you consistently hit this number, consider setting your minimum net profit per item around $5/unit. L

How to Avoid It

(1) Hope for the best, plan for the worst.


(2) Avoid items that could easily lose all profitability with small changes in price.


(3) Be mindful of storage fees and estimated duration in warehouses. 

#10 Not Buying the Right Amount (Too Many or Too Few)

Confidence comes with time. Having too much confidence can cause you to waste money and having too little confidence can cause you to miss out on money. 

Unfortunately, that doesn't mean that the right answer is always in the middle of buying a sh*t ton and walking away. Each buy is different. 

How to Avoid It

(1) Use Keepa and all of the data at your disposal.


(2) Continually learn from your past results. This is the only way to have a healthy level of confidence that will keep both your costly over-buying errors and under-buying missed opportunities low.


(3) Don't beat yourself up for mistakes. Write them off as "educational expenses." Remember, it will take a TON of mistakes to add up to the cost of an affordable college degree 🙂

#11 Not Factoring in Buy Box Competition

The number of sellers on a listing isn't the most important metric. You need to consider the number of competitive sellers that have a realistic chance at obtaining the buy box. 

Many sellers are stubborn and refuse to lower their prices enough to move their items quickly, but others will race to the bottom if you try to undercut them. There are tools to show how many competitive sellers there are AND how many units they have in stock. 

The total quantity of items from all competitive sellers is your realistic waiting line (all things being equal). 

How to Avoid It

(1) Consider competitive sellers and how many units they have in stock using tools like How Many or Tactical Arbitrage.


(2) Take notes of the big name sellers who regularly race to the bottom and avoid them if necessary. 


(3) Always estimate your price assuming you need to match the current buy box price. You can loosen this rule over time when you learn how to spot temporary liquidators. 

#12 Not Factoring in Deal Visibility

Items that are on sale at Target nationwide will see an increase in supply on Amazon while products found in an end cap clearance at a mom and pop shop are more likely to see little change in competition (all things being equal).

How to Avoid It

Be mindful of how many people will see a deal. Nationwide deals can see a very quick influx of sellers and supply.

#13 Not Checking Expiration Dates or Not Factoring Them Correctly

How to Avoid It

(1) Be sure you're aware of Amazon's current expiration policies.


(2) Always double check expiration dates on each unit. Example: 20 units purchased requires 20 unique checks.


(3) Avoid going too deep on perishable items if there is a risk that you won't sell out of them before they cross the Amazon expiration limitations (this is not the same date as the actual expiration, it is before).

#14 Not Using a Cash Back Credit Card

If you're not using a credit card that offers cash back card or other valuable rewards when you use it, you're missing out. Check out this post to see what cards other Amazon sellers are using. 

#15 Not Logging Your Miscellaneous Expenses

Don't fall for the myth that casual reselling isn't treated like a real business. It is. Although there are pros and cons to this, one of the pros is that you can typically write off certain expenses when doing retail arbitrage like mileage traveled, gas etc. Talk to a professional to found out more about what you can and can't write off as business expenses, but it's likely much more than you think. 

How to Avoid It

(1) Save your receipts and track mileage for all trips you make to source products, drop off shipments or purchase supplies. 


(2) Talk to a tax professional about what options you have and how to best log your mileage and other expenses. 

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