You are just starting your journey with online arbitrage and you are wondering what in the world you can sell for a profit on Amazon. You get to thinking and realize that most online retailers have a clearance section. Since you have most likely done a little retail arbitrage in your past, you know that there might be some gold in the clearance aisle. At the same time, you can’t shake the feeling that it can’t really be this easy.
So what should you do? Should you target clearance items to flip and sell on Amazon using online arbitrage?
Well. It depends.
It depends on the reason that item is on sale in the first place. It depends on the potential profit margin. It depends on the projected sales volume.
It depends on the data.
If the data supports the purchase of a clearance item to resell on Amazon, then you should make sure to fill up your virtual cart and buy all you can. If the data doesn’t support the purchase, you should set your emotions aside and look for deals in other areas.
I want to take a look at the different ways you can find clearance items and how to analyze if they are worth purchasing for online arbitrage. If you follow the basic steps provided below, you can avoid purchasing duds and set yourself up for some major profits on low cost items.
Where Do I Start With Clearance Items?
Before we even go looking at clearance items, you need to determine your buying criteria. This includes your expected profit margin, sales rank, and minimum return on investment. If you do not have these determined for your online arbitrage business, do not even head to an online store.
Once you have the buying criteria in order, you need to create a list of stores and websites where you can find clearance items. Although most sites have a clearance section, some have a better selection of products than others.
Some of my personal favorites to get started with are Walmart, Target, and Home Depot. I also recommend taking a look at the stores you have locally as well. Nothing is better than finding a deal online and being able to find additional inventory at your local store.
Another tip from a professional is to increase your searches when retail stores start discounting items. The online environment mirrors the retail space and you can find incredible deals by knowing when to search (before they get picked over by other shoppers). I love to shop on Cyber Monday, the days after Christmas, and the end of the summer for the best deals on the items I love to buy and resell.
Which Clearance Items Should I Select?
If you have your buying criteria created, this should be an easy question to answer. Online arbitrage isn’t much different than retail arbitrage, but you do have the ability to look deeper into an item’s data before making a purchase. I’m a strong believer that the most important pieces of data for a purchasing decision are price, profit margin, and sales rank. These data points help to give you a broad idea if a flip is going to be profitable or if you should pass.
The other great thing about online arbitrage is the fact that you can get additional data points that would be harder to get when you are in a store with a cart (and that one old lady that wants whatever is right where you are standing). We will talk about this in more detail below, but know that you can use this to your advantage as you search those virtual clearance racks.
Calculating Return on Investment
Before we dive into the rest of the article, I want to address a few assumptions. I assume most of you are going to be selling on Amazon and will be using Amazon’s FBA service to sell and ship your items. Although this is my prefered method of selling online, I want to note that you can use some of the same techniques on eBay or Mercari to make money online. These different platforms might take some adaptations, but with a few tweaks, there could be some major profit for those who choose to specialize in a platform in addition to Amazon.
If you froze in panic when you read the word “calculating,” don’t worry. As I tell the students in my Personal Finance class, there are tools out there that will do the heavy lifting for you.
In order to find your ROI (or return on investment for those who are great with acronyms), you really only need an FBA revenue calculator. It does some fancy math that accounts for fulfillment, shipping, and storage fees and helps you to determine if you would make a profit or not.
I personally let Tactical Arbitrage do all the heavy lifting, but there are free tools out there. A quick Google search can help you find them to install on Google Chrome.
If you are curious about the real math going on, it’s pretty straightforward. The list price is used as the starting number and Amazon fees are removed based upon the category and product dimensions (as it relates to shipping and storage fees). Then you have the price you pay for the piece of inventory (your costs) and it is subtracted from the remaining balance. This leaves you with either a positive or negative number that represents the profit you would make if you sold the item at the list price. It also gives you a percentage called your ROI that tells you the amount of profit you receive in relation to the cost of your inventory.
The minimum number you accept on your ROI is a personal choice, but I recommend at least a 30% return on your investment. This gives you a good reward for your risk and doesn’t tie up too much cash. If you have a bigger “bank” of cash and an item is a fast seller then a lower ROI may be tolerable if it means good cash flow and the ability to reinvest quicker. If a product has the potential to make 30%, 50% or an even higher ROI, then the product has ticked off one of the requirements for flipping.
Studying the History of the Product
In a store setting, most resellers use a quick measure of sales frequency called. The sales rank compares all of the products in a category and tells you which one is selling more units. Sales rank is a great piece of data, but it is only a snapshot of information.
That’s one of the biggest advantages of online arbitrage. You have more data at your fingertips than you can ever use. That being said, I recommend you use the sales history and price history to make educated choices on product purchases. This can give you insight on the average selling price and frequency and can reduce the likelihood that you buy inventory that doesn’t sell or sells for a loss instead of a profit.
I recommend products with a sales rank of 100,000 or less that have a strong history of sales and a steady price history.
Always trust the data!
In Conclusion
It might seem easy, but there is a lot of work that goes into finding the perfect product to sell on Amazon. We just walked through the steps you would need to take in order to find an item and determine if you should buy or pass, but it does take some time and practice to become an expert.
Speaking of time, the entire process of online arbitrage takes a lot of it. You spend hours searching for products and even more time determining if you should buy a deal. I personally use Tactical Arbitrage to help me do the heavy lifting, sorting, and initial analysis while I sleep. Since there are only so many hours in a day, it’s extremely important for me to maximize my productivity and continue to grow my business.
Get your free trial of Tactical Arbitrage here.