The Biggest Problem With Retail Arbitrage, And How You Can Fix It

The biggest problem with Retail Arbitrage that I hear these days comes to scaling it to 7 figures. We here it all the time in the Amazon space, “Retail Arbitrage is not scalable”. It’s simply not true and I believe this is said for 3 reasons.

  1. RA has a low barrier of entry. Typically this draws a side hustle crowd, not your typical entrepreneur who wants to have multiple businesses, outsource their accounting, and contract work out to people across the country to do their shopping. So it’s a mindset thing. RA is scalable, some mindsets are not.
  2. Most sellers who achieve some success don’t start to think outside of the box enough. They don’t focus on building relationships with managers at the store. They don’t think about renting a U-Haul and driving a few hours to do a large haul when the sales are good. Again, it becomes a mindset roadblock, not a business one.
  3. Okay this is the big one… a lack of systems and processes that allow a business owner to work ON the business instead of IN the business. What I am talking about is a clear set of processes called Standard Operating Procedures (SOPs). Whether you are doing this alone or have a few employees, SOPs will add MASSIVE value to your business.

Number 3, will be my main topic of discussion in this post because I have gone from the solopreneur who thought I was saving money by doing everything myself to the guy with 5 businesses who realizes I am the worst guy to be working IN most of my businesses and it will end up costing me money in the long run compared to outsourcing and contracting out work.

First, I want to address the main obstacle for most Retail Arbitrage sellers, mindset. This had to shift for me first in order for the rest to fall in place.

I started my Amazon journey in 2015. I had no idea what I was getting into. I was very doubtful of it being successful . In fact the program I got involved in seemed pretty scammy but I was desperate at the time. It was a $20 training on how to dropship products on eBay. It sounded too good to be true and these days it actually is. My timing was perfect, thankfully.

I turned a $20 scam into a million dollar Amazon business just 2 years later. Guess what though, my mindset still sucked. I was stuck in dropshipping, didn’t see a way out of it but knew I needed to get out of it and into using Fulfillment by Amazon (FBA).

Dropshipping kept me in my comfort zone. I didn’t need to trust anybody with a corporate card. I didn’t need any employees except the $3.00/HR Virtual Assistants I had in the Philippines. It was easy to manage a dropshipping business and still do $1,000,000 in sales every year.

In 2017 I decided to give up retail dropshipping and switch to FBA. We kept some legit drop shipping contract we had because well…dropshipping is awesome when you do it right. No inventory to store and you sell something before you buy. It doesn’t get any better than that but those relationships are hard to come by.

I had no idea how difficult my journey was about to get and it was due to my old way of thinking that made it difficult. I came into the FBA business with the dropship mindset.

I spent way too much money right away thinking I’d be able to pay it off in 2 weeks…NOPE

I was buying items that had a high return rate and was not prepared for the negative effect on my cash flow from returns…OOPS

I had no idea how to manage all this inventory that was setting around being shuffled between sellable and un-sellable inventory.

Amazon kept losing stuff, damaging products, taking forever to check items in…which led to more cash flow problems.

It was a nightmare.I needed help so I could focus on these big problems but still fuel the growth of the business without going back to dropshipping.

→ Enter my mindset shift.

I had to begin trusting employees to do purchasing.

I had to become comfortable with teaching them my processes, even though I feared they could just steal my systems and do it themselves.

I had to become comfortable with removing myself from the day to day hustle of the business and trust other people to handle work.

I had to become ok with understanding that they don’t care about my business the way I do. They are not going to do the job as good as I would do it myself.

I had to become ok with lower quality work because its just not realistic to expect every employee to give my business the attention that I do.

See how all this has to do with how I viewed things (mindset) and nothing to do with the business itself?

Once I freed up my time I became capable of working ON the business rather than IN the business.

Now I had time to network with other sellers.

Now I had time to build relationships with the people I was buying from. They started notifying me of discounts, opening the store early for me, checking stock across the country, helping me with sales tax exemption across the country, etc…

Now I had time to sit down and write Standard Operating Procedures that allowed me to plug employees into my processes. It’s literally like taking all the info and experience out of your mind and putting it into a system that can be replicated over and over and over.

The change in mindset led to more free time which led to me improving my business skills which led to more revenue and more money in my pocket.

None of that stuff would have been possible if I was stuck in the store scanning items, fumbling around with battery packs and cords, hoping I had enough juice in my phone to meet my sourcing goals.

Nowadays my arbitrage operation runs without me touching it. Currently we are doing between $80-$100k a month in sales . I can hire and train 1 employee in less than 2 weeks and have them sourcing $30-$50k of inventory a month working 30 hours a week. That’s at least $1000 of purchased inventory per hour of work. At $15 an hour for pay that is $1800 in payroll.

Using conservative numbers lets say that employee sources $30k of inventory at a 20% ROI, that equals $6000 of gross profit, take away payroll and the business is left with $4000 in profit. Lets thrown in a 1% bonus to keep them happy ($300). Now I am left with $3700. Does that sound scalable?

The stores we source are found all across the country and on the internet. There are hundreds of thousands of people looking for a job that allows them to work 30 hours a week on a flexible schedule.

In the world of Amazon, arbitrage allows you to get a return on your money the quickest. Send something in and you could get paid for it 2 weeks later. We don’t source anything that will not sell in less than 90 days.

I’ve sold over $2,000,000 of arbitrage products on the Amazon platform. It is absolutely scalable.

Even if you have issues hiring people you should absolutely have SOPs in place. Selling on Amazon can be overwhelming. Having an Inbound Shipping SOP can help prevent issues like putting the wrong quantities in a box or shipping a box to the wrong fulfillment center.

Having an SOP for handling returns and reimbursements can be the difference between success and failure when it comes to selling on Amazon.

When you treat selling on Amazon like a business and not a side hustle it scales itself.

Doing it on the side is cool. It’s a great way to make extra money but don’t go around saying it can’t be scaled because my team is out doing it every day.

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