On another post I have discussed What is Retail Arbitrage and I think it’s time to talk about the Wholesale model especially when you have some RA under your belt.
Once you have some RA experience, wholesale is the natural progression. With wholesale you don’t have to constantly look for retail stores to replenish your inventory. Better yet, with wholesale you will have a better advantage on price. Moreover, you will be able to scale your business by adding more and more products.
Requirements or Prerequisite:
- Retail Arbitrage experience
- Professional Amazon selling account
- A registered business
- Resale Certificate for your state
If you are new to selling on Amazon, read my post on Beginner’s guide on selling on Amazon, it will give you some basic background and knowledge in the area and the meaning of various terms.
Some explanation on the prerequisites:
With RA experience, you already know how to operate a seller’s FBA account, some idea of what is selling or not. And because you want to scale bigger, you need to upgrade to a professional account or you past selling 40 units a month.
The next requirement is a legal business structure such as a registered sole proprietor in your county or a LLC or Corporation because you need that to obtain a Resale tax Certificate.
The final requirement is Resale Tax Certificate. Once you applied for a sales tax license in your state, you can issue Resale Certificate to wholesale companies. Almost all wholesale companies or distributors require that because they don’t sell to retail customer plus you don’t pay sales tax when you buy inventory.
Sourcing Wholesale Products
Now that we have the requirements out of the way, we are ready to source products. The best way is to do research on a Amazon itself.
To minimize fierce competition, here are some criteria to get you started:
- BSR between 5,000 to 70,000 (subject to change due to each category’s catalog volume)
- Amazon.is not a seller
- Number of FBA sellers is 3 to 4
- Product is under 2 lb.
- Decide on your profit margin or return on investment number
One way to start is to look up any products you are familiar with on Amazon itself. Input the product name in the search bar on Amazon.com (be sure you search under All Departments).
Once the results are up, select subcategory from the left side menu, continue until you find something you are interested. Make note of the criteria: BSR, Amazon is not a seller, the number of sellers and weight.
Once you find a product that fits the criteria, make note of it and then use keepa or camelcamelcamel to check the BSR and price history for the past 3 months. If the BSR or price is pretty consistent, you have a potential candidate.
The next thing to do is to contact the manufacturer or distributor. You can often find this info on the packaging itself. Reach out to the manufacturer or distributor and explained you are a reputable online retailer on Amazon and you will like to open an account with them.
Once you have the account opened and receive their catalog, review the catalog to see if the wholesale price makes sense compare to the Amazon retail selling price, i.e. the wholesale price is low enough to make your selected ROI or profit margin.
Estimate the sales per month by using the average BSR for the last 3 months and input the BSR into JungleScout sales estimator. This number will be the basis of how many you will order so that your cash will turn once in a month. Be conservative by ordering a lower number than the estimated sales per the JungleScoit estimator.
Next, order from the manufacturer or distributor and then send them to Amazon FBA warehouse and start selling. Then rinse and repeat.
Scaling The Business
The whole idea of wholesale is that it is much easier to scale. You can scale the business by not withdrawing any cash and keep investing the profit by adding more and more products until you are at a point that you feel comfortable drawing a percentage of the return and still has enough money to expand.
Looking back I think I would have start with RA, OA then wholesale before getting into PL. This way it is less involved and has lower risk. The benefits are you don’t have to worry about advertising (PPC), branding and marketing as this is always a must with a brand new brand.
If you are interested in more step by step instructions using video, my business partner has great video courses on the subject of wholesale that is easy to follow and make sense. Take a look here, proven wholesale sourcing course. Or better yet, the Proven Amazon Course has everything you need to know about selling on Amazon and much much more and has the most bang for the bucks. It has beginner’s set up, Retail Arbitrage, Online Arbitrage, Wholesale, Private Label, Bundling, Sourcing, eBay…. the list goes on, all included in one single lifetime membership access. I’m getting a lot of value from it and so should you to be on your way to own your hours.