Today I’m thrilled to have Nate McCallister on the show. Nate is someone who I met at the Import Summit several years ago and he runs a bunch of sites and services related to Amazon.
First off, he’s an Amazon FBA seller himself, a service provider, a software company and also a consultant for other sellers. He also runs the popular site EntreResource.com.
But the main reason I wanted Nate on the show is to talk about the current state of retail and online arbitrage.
As an online arbitrager himself, he’s been involved with the software tool Tactical Arbitrage and he’s the founder of the popular tool Storefront Stalker as well. Enjoy the show!
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What You’ll Learn
- The difference between retail and online arbitrage
- How arbitrage works on Amazon
- What the margins are like for retail arbitrage
- Is arbitrage a good long term business model on Amazon?
- How to find profitable products to sell
- The pros and cons of retail arbitrage vs private label
Other Resources And Books
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Klaviyo.com – Klaviyo is the email marketing platform that I personally use for my ecommerce store. Created specifically for ecommerce, it is the best email marketing provider that I’ve used to date. Click here and try Klaviyo for FREE.
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But before we begin, I want to give a quick shout out to Klaviyo who is a sponsor of the show. Always excited to talk about Klaviyo because they are the email marketing platform that I use for my ecommerce store, and I depend on them for over 25% of my revenues. Now, Klaviyo is the only email platform out there that is specifically built for ecommerce stores, and here is why it is so powerful.
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Now I also want to give a shout out to Privy who is also a sponsor of the show. And Privy is a tool that I use to build my email list for both my blog and my online store. Privy is an email list growth platform and they manage all my email capture forms, and I use privy hand in hand with my email marketing provider like Klaviyo. There are a bunch of companies that will manage your email capture forms, but I like privy because they specialize in ecommerce.
Right now I’m using privy to display a cool wheel of fortune pop-up. Basically, a user gives their email for a chance to win valuable prices in our store. And customers love the gamification aspect of this, and when I implemented this form, email signups increased by 131%. Now bottom line, Privy allows me to turn visitors into email subscribers, which I then feed to my email provider to close the sale. So head on over to Privy.com/Steve and try it for free. And if you decide you need some of the more advanced features, use coupon code MWQHJ for 15% off. Once again, that’s P-R-I-V-Y.COM/Steve. Now onto the show.
Intro: Welcome to the My Wife Quit Her Job Podcast. We will teach you how to create a business that suits your lifestyle, so you can spend more time with your family and focus on doing the things that you love. Here is your host, Steve Chou.
Steve: Welcome to the My Wife Quit her Job Podcast. Today I’m thrilled to have Nate McCallister on the show. Now Nate is someone who I met at the Import Summit several years ago, and he actually runs a bunch of sites and services related to Amazon. So first off he’s an Amazon FBA seller himself, a service provider, a software company, and he’s also a consultant for other sellers and he runs the popular site EntreResource.com.
But the main reason I wanted Nate on the show today is to talk about the current state of retail and online arbitrage. And as an online arbitrage himself, he’s been involved with the software tool Tactical Arbitrage, and he’s the founder of the popular tool Storefront Stalker as well. And with that, welcome to the show Nate, how are you doing today man?
Nate: Hey Steve, thanks for having me on. You can hear me all right?
Steve: Yeah you sound great now. Can you believe, it’s been like three or four years since we met at the Startup Bros conference?
Nate: I know man, time flies. It seems like it was just the other day.
Steve: But I’m pretty sure…
Nate: That was a great conference.
Steve: It was. I had the most fun at that conference I think mainly because the alcohol just kept flowing. I remember they went all round.
Nate: Yeah they made sure that that was [overlapping 00:03:53]. Yeah that was a great conference, great venue. I asked them if they’re going to do another one, they just kind of like uh…
Nate: A lot of work went into that one; I think it beat them up.
Steve: Yeah, it totally did. So Nate for the people who don’t know who you are, give us a quick background story, tell us how you got started selling on Amazon.
Nate: Yeah, again I’m Nate McCallister. I got started selling on Amazon several years ago. I guess it was a couple years before we met. So if you get a calendar out to check and see how long it’s really been. I stopped stuff that belongs to this kind of rosy era at this point. But I got started; I was interested in making money for myself. I had jobs I didn’t really love, and I was always — I just didn’t really have much direction. I always was listening to podcasts like Smart-Ass, and I didn’t know about your podcast. I don’t know if it was around back when I was digging for the stuff.
Steve: It’s okay dude.
Nate: But yeah, so I listened to these podcasts every day when I was at work, and you hear about all these people doing these different things. And they were all exciting. But for some reason that one of them really resonated with me was an interview. It was somebody was talking about how they were buying and selling stuff and selling it on Amazon, buying stuff from local stores like Target and Toys R Us, and they were going and selling them on Amazon. Now I thought that was crazy, and then I thought it was even crazier when they were like, yeah we made one $120,000 this year doing that.
I don’t remember the exact number, but it was over $100,000 just like that, one of those mental numbers that it kind of sticks to you when you’re first getting started is six figure. The guy was making six figures. I was like man, that’s awesome, you can do that. I was like if this person is doing it, nothing offensive against them, but if they can do, it doesn’t sound like there’s anything too crazy involved. I like shopping, I can do that.
So I started doing that and I started by actually just selling some stuff from my house. I stole — I had two copies of The Four Hour Work Week. I’m sorry that was Four Hour Body. I had two copies of that because I saw one at the thrift store, so many just like that. I remember I went up to you for some reason Steven. But I was just scanning everything in my house, scanning with the Amazon app and saying what if there was any profit to be had. So everything in my house was obviously I didn’t even own it and so I didn’t have any cost.
So I was like okay cool, so this book sells for like — I saw that it sold for around like seven bucks. And I sold it and I fulfilled it at the time. I fulfilled it myself and after all was said and done it was like a dollar an hour every hour. But I was so excited because I was like, man I did that and that was just stupid dollar or whatever. I could’ve made more money as a hobo asking for cash outside the road. I was like but I know that this can scale now, I know that it actually is a thing people — like I listed this book and it sold immediately and it was because that book is extremely popular.
But I was shocked. I was like, oh I forgot that other people in the world buy stuff like this so fast. You don’t really appreciate until you’re like, man every second somebody is buying something that you have. So that was really cool and for some reason that really was an eye opening thing for me. And it ended up; I started doing that a lot. I started right after I got from work, I would go out, and I would source. It’s called sourcing when you go out to these retail stores and you scan stuff, you see what makes a profit.
There’s different apps that are out there that show you the price on Amazon, and then you enter the price of the product in the store and then you can, you net the arbitrage on that right which is the price difference after the fees of the price bought for and then the price for Amazon minus your fees. And that was really cool because you know I’m sure a lot of your followers sell on Amazon as well, right? And you understand fulfillment costs and all that.
So once you start to see that, man, all of these stores have products that make money, it’s just a matter of going through there and sifting and finding out. So that was really cool to me, but then again after I start doing it I was like, this is awesome. But I’m running out of time, like I still have my job and I was also in school. So I was in college. I had a kid, a young child at the time too, and really, really wanted to do this entrepreneurship thing.
So me and a friend, he decided to start doing it with me, and we decided — I don’t know where we heard about the concept or we just started doing it what inspired us to do but we thought that there’s websites online just like there’s physical stores, physical retailers that are selling things that are going to inevitably be lower on some products than they are on Amazon. So we were buying and selling products now online. So like I was able to do this like when I was waiting for a class to start, or when I was supposed to be paying attention in my class or at work. I was able to be sourcing.
I was finding products to buy and sell, and we would buy something from like let’s say just a basic example you would find something at target.com. It’s not as easy now as it was back then but you’d find something like that for ten bucks, you would pay whatever your cost for it to get to you and then you would you pack it up, send to fulfillment center and let it and hopefully it would sell at the price you estimate it would at when you originally bought it. And we were making pretty good money with this, and still even at that point we were like man, we still don’t have enough time like my time was just so crunched.
So we hired virtual assistants and we started — we paid people in the Philippines, we taught them our process. I was like all right — and I’m a huge Tim Ferriss guy. So I was obsessed with The Four Hour Work Week. I just said my first book was Four Hour Body. So I was obsessed with Four Hour Work Week. I learned a lot about outsourcing in that. And so I decided to hire somebody from the Philippines to do this process for me.
So I spent about a week training this person on how to do what I was doing, and I wasn’t really great at it yet either, which wasn’t a bad thing because they were able to learn from scratch, and they weren’t sending me products now to buy, they were basically sending me the links to these profitable opportunities and then when I got home I would buy them, and then we get them shipped to my house and then we’d back them up and ship them.
And it got to some point where I started making enough money that I was able to finally actually I was making more than I was at my job. And at that point I decided to quit my job. And then actually it kind of escalated from there, ended up selling good but anybody that knows me knows that I like business in general. I’m not obsessed or in love with one facet of business. So I love selling on Amazon, but right now my big bank people probably know me for my software is in the work I do with the software.
Steve: Hey Nate, what – So I going to say I do want to talk about your software, but one of the reasons I wanted to have you on because you have expertise in the retail and online arbitrage world. And I was wondering like all these techniques that you did a long time ago, it sounds like maybe four, or five years ago, it’s gotten harder right?
Nate: Yeah it would, anyone who says it hasn’t gotten harder is just lying. There’s really no reason to lie about it either if you’re doing it because you don’t work out that there’s a share of the truth. The truth is that there are now more tools that make it — that level the playing field. If I were to do it the way I did before by myself, it’s very hard.
Steve: So what is the difference between retail and online arbitrage first of all for those people out there who don’t know the difference?
Nate: Yeah, so retail arbitrage is just basic brick and mortar stores. You’re going — literally you’re walking into the stores like you would if you like you’re going to Target to go and buy anything you’d normally buy at Target. You’re going there except this time you’re buying for business, and you’re scanning things with either the Amazon, Amazon has a free app that you can scan bar codes or a paid tool like Scan Power or Inventory Lab. They all have these softwares that you scan and check prices so you can see sales rank and stuff like that.
You take out your fees so you know how much is actually — you can see profits, right? And you can see the data that you need to know before you buy something. Just because something is on sale at Amazon for 54 bucks doesn’t mean it’s selling for 54 bucks. So these tools give you — most of the good ones let you see things like historical graphs from Keepa and CamelCamelCamel so you can actually see if things are actually selling. So that’s retail arbitrage you’re actually going to the store, buying stuff, taking physical stuff home with you.
Steve: I see, okay.
Nate: Online arbitrage is the same thing except for instead of walking into a store; you’re going into a website. So you can be in your underwear at your house doing online arbitrage. And back when I did it on a large scale, it was all coming to me, and the stuff was all being — I would get it and pack it, and ship it. But now there’s — I didn’t know about prep centers, but now there’s prep centers where you can actually you can buy the stuff, have it shipped to the prep center. It’s a third party company; you have it shipped to a prep center, then they ship it to Amazon for you.
Steve: I see.
Nate: There’s a lot of businesses now. So online arbitrage you could really do it without — if you wanted to, you could do it without actually ever seeing the product except for your return.
Steve: Can you do online arbitrage on Amazon in such a way where you do merchant fulfilled and then you use list something on Amazon and then as soon as you get a sale you just go to that site and order it and have it delivered directly to the person?
Nate: Yes. So that would be called drop shipping, and you can do that. But it’s a high risk model and I don’t ever recommend it. I recommend — I love the drop shipping model like it’s really cool, but I don’t recommend it for anyone on Amazon because the problem is that you’re counting on another company to be in stock. So like if somebody orders it and then they go out of stock and you can’t fulfill it for some reason, a lot of people make the mistake of instead of going in and taking a loss on it right like sometimes if the raw product wasn’t available anymore, instead of maybe buying a full price unit and taking a hit on it, they just cancel the order and that is…
Steve: That dings your account yeah.
Nate: Yeah very, very quickly. And if you doing it at scale, that’s a problem as it’s not scalable because at scale you’ll always have those instances and it will end up shutting down your account. So I tell people that drop shipping is cool but you should do it with like a third party website like ClickFunnels, a sales funnel or Shopify store where you’re drop shipping stuff from in your own brand’s name or in your own you know something that if you cancel an order you’re not going to put yourself out of business.
Steve: So Amazon has started brand gating a lot of these brands, right, and so does that — how do you get around that when you’re doing online arbitrage or retail arbitrage? So for example let’s say I want to sell like cheap Lego products, would that still be possible today?
Nate: So on Amazon the difference between private label and arbitrage is going to be — well it’s the same I guess. You’re going to have a lot of – well in private label you don’t have restricted brands. In retail arbitrage and online arbitrage you some brands you just can’t sell. And there’s also some categories you have to get approved to sell. So it is a game of — it’s not as easy as it makes money if I buy it and sell it I can sell it. It’s unfortunately it doesn’t make money on Amazon and then you have to check that you can actually sell it.
So that part can be a little bit frustrating at first for newer sellers because there’s a lot of gates and restrictions right now for newer sellers. But it’s still totally feasible, it’s just something it’s just the nature of the game, and it’s always changing. Ever since I’ve been a seller, every year it’s gotten a little bit – it’s not that it’s hard to make the same amount of money; it’s that it’s just different.
Steve: You have to move around brands.
Nate: Every year right.
Steve: Would you say that like most of the popular brands are gated at this point or no?
Nate: Say it again.
Steve: Would you say that most of the popular brands are gated at this point or no?
Nate: No, a lot of a lot of big brands are like Nike had a big thing with authenticity issues. There’s a bunch of big popular brands that you would want to be able to sell that once you’ve been selling for a while you just know that you can’t sell them and you don’t even bother scanning them. But it’s totally — and there’s also softwares now that make it so that you can actually kind of remove those restricted products from even and I’ll get into that a little bit.
Steve: Okay sure.
Nate: Yeah and all the scanning apps will tell you when you scan it if it’s restricted for your account. So that’s how you get it. It’s easy to fall prey to that where you buy stuff and you think it’s going to make money and then you realize when you get home that you aren’t able to actually sell it.
Steve: Yeah but the tools will tell you, right? The tools will tell you what’s restricted, right?
Nate: Right, the tools will tell you. When you use the app, you log in, yeah they’ll tell you what’s restricted.
Steve: So you mentioned certain categories you have to get ungated. What is the process for getting ungated these days?
Nate: It depends what the category is, it’s completely changed since back when I first got ungated. Sometimes it’s just you click and approved and sometimes there’s actual applications that you have to fill out. It depends what the category is, and then randomly the categories will come open where they’ll just take anybody that applies. It used to be you got to submit what’s called a flat file which is a big long complicated Excel file showing that you knew how to make variation listings and you have to send invoices and all types of stuff.
I haven’t had to get ungated in anything in a long time, so I’m not even sure for some of the categories how difficult or easy it’s become. I know it’s definitely different, and categories like shoes and clothing don’t require these complex excel files like they used to.
Steve: Okay. So would you say that most online arbitragers are sticking to certain categories then? Like what are the popular categories?
Nate: Yeah. So as far as category goes, I always tell people that they should just be open minded to whatever they can sell. Money is money in that sense; it doesn’t matter if the category is toys or if the category is home and garden or apparel. It’s different than when you’re a private label or a wholesale business where you’re trying to create a brand and you want to have some continuity. When you’re arbitraging, you don’t really have continuity with that, which is one of the pros and cons of this model, is that you don’t really have that same brand equity.
You have kind of a flea market so to speak. It doesn’t make it sound attractive, but you have — picture is more of like, I don’t know a garage sale rather than a boutique shop that sells the same stuff.
Steve: Okay sure.
Nate: My imagery is terrible.
Steve: That’s okay.
Nate: It’s a broad array of stuff. And toys are profitable, a lot of people do still favor certain categories, toys, shoes, and clothing are always big especially for retail arbitragers, shoes and clothing are huge. But online arbitrage toys and kitchen and home and garden and stuff like that, there’s really no category that if you’re approved to sell it, you should look at it and not totally get it off for any reason. But some do perform better than others overall like you know basic stuff toys and outdoor equipment, sports equipment, stuff like that does well.
Steve: When you find an online arbitrage opportunity like a website, does it tend to last or does it go away relatively quickly?
Nate: The leads don’t last long for a number of reasons. First you have a limited stock that the store might have. Then you have the fact that depending on how many other people are doing online arbitrage, if they find the store and then it’s also — so it’s not that the store itself stops being profitable, it’s not those items will stop being profitable. But everything is constantly in flux. So there’s always new products on Amazon, there’s always new products in the stores, there’s always going to be price discrepancies because these third party sites don’t always compare the price to Amazon.
And even if they did, the price changes on Amazon so much. It’s just not — so you do get these arbitrage opportunities all the time, and some of the softwares that I’ll talk about a minute can scan hundreds of sites at the same time and find products.
Steve: So can you buy like a bunch of stuff that you think is a good deal but then all of a sudden the price plummets on Amazon, that does that happen?
Nate: Yeah that definitely happens more once when you’re getting started. It’s just something that new sellers should absolutely take into — I call it kind of just like a learning tax. It’s like your tuition to sell on Amazon is you’re going to make some bad buys. The real key is to just always assume that you’re overestimating the price before you make a purchase, and be really cynical and critical I guess, cynical I guess is the word. And think that there’s some reason why this isn’t a good deal. And if you look at everybody that way, you’ll end up better off.
I used to look at it as, oh this is great, this makes — I had a really stupid model where I was like, oh if it makes a dollar let’s just get it, why wouldn’t I want to if it makes a dollar. And like after fees I’m like, this is so stupid, that gives me no wiggle room. And also it’s like what’s the point of tying up all my capital on stuff that makes no money really, really embarrassing. So you need to have like a minimum acceptable net profit per item and minimum acceptable ROI.
And that varies by the seller. It depends how much cash flow they have, but you have to give yourself wiggle room. And those tools like Keepa and CamelCamelCamel that will tell you, they’ll show you historically how many times things have been selling, the price, so you can see like if I buy — just like I said earlier just because it’s listed at 59 bucks on Amazon, it doesn’t mean it ever did sell at 59 bucks. It doesn’t mean it ever will sell at 59 bucks. The realistic price for it could be 24.99.
Steve: Okay. So what are the margins like? What are some guidelines that you typically have for profit? Do you do it by dollar amount, or do you do it by percentage?
Nate: You want to kind of weigh both. Anything you know having a minimum net for me of $4 profit would be what I’m looking for, and then a minimum ROI. I would not want to go below 25% on a short thing. But it depends. I don’t do it at scale anymore, so I don’t have the cash flow that other sellers are putting in their products. So some people will take bargains way, way smaller than I would, maybe as low as 10, 15%.
Steve: That’s crazy.
Nate: Then there’s some sellers that won’t on take anything below 40 or 50. Unfortunately there’s tools now that make it so that you can find products.
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Yeah, so walk me through the process, like walk me through what the tool does and like how you would go about finding an opportunity.
Nate: Yeah, so the tool that — I can’t really do on a podcast about online arbitrage without talking about this tool because it just is…
Steve: Yeah do it, go for it yeah.
Nate: So the tool is called Tactical Arbitrage. What it does, well it does a couple of different things, but at the heart of it the purpose of the tool is to help you find products to sell on Amazon at a profit. So at any given time, like I had said before there’s millions of different products on Amazon, but then there’s also millions of different products on tens of thousands of other sites right. So Amazon is the king but there’s also tens of thousands if not hundreds of thousands of other web stores out there online that are also selling things.
And there is ways for us to pare those up. So the software Tactical Arbitrage, what it does is it compares the prices of products on Amazon with and then it goes out and finds those same products on hundreds of other sites across the internet. And when it finds it, it can show you the price of a third party site compared to the price on Amazon, and then take out your fees and tell you what you would make on it all things being equal if you bought it on a third party site and then shifted in to sell it on Amazon.
Steve: That’s crazy okay.
Nate: Yeah it’s really gotten extremely — when I started promoting it with Alex, I guess it’s been a year and a half, two years ago now, it was just 30 sites that supported it, and it was I mean it was amazing back and people were going crazy about it because everybody who did online arbitrage knew how powerful this was because it was literally finding these leads that were taking us hours and hours of manual sourcing page by page by page to find. This thing was just blowing through them and then kicking out just some little beads at the end.
Steve: So let me ask you this, if there’s a whole bunch of people using the same tool, won’t they all find the same deals?
Nate: There are so many different parameters that can be set that it makes saturation less of an issue, and you’re also going to have kind of the first come first serve thing with — it’s not that every site. Like if I go to a third party site that’s a smaller third party site, one of the tertiary sources that TA supports and I find a product, and it has a – there will be a couple of things that could keep it from being extremely hard to get past.
First, if the sales rank is extremely — it depends on how whatever the sales velocity is supposed to be is obviously going to be a big factor. If this thing is going to sell 100 in a month, I’m not going to be really — that source is probably not going to be able to tank the price. You get this is all things being equal, there’s other variables.
Steve: Sure, sure.
Nate: But then you’ve got the fact that most people, most stores have a limit on how many you can actually buy, and then you have other variables like people aren’t all looking at the exact same categories. I mean there’s hundreds of different, there’s so many different products and for people to be looking at the same ones and then flooding each other on the same ones is not as big of an issue as it seems like it would be. It’s not like everybody is going into – you’ll see the movie of — what’s that movie with Arnold Schwarzenegger where you want to give the turbo man to jiggle all the way, but seeing where they are, they all rush into the theater and they want to get like ten of these turbo men.
Steve: Yeah, yeah, yeah, aha. So it’s not like that.
Nate: It’s not like that.
Steve: Okay, okay.
Nate: So it’s a huge, huge market. There’s hundreds of sites, and then you got facts like not everyone has the capital to buy the lead that they found. The leads once you get the products, you always want to anticipate that people are going to come in and undercut you as well. So that’s another thing that I recommend people do when they’re buying is they keep that in mind. So if you think it’s going to sell 30, and you’ve seen historically it’s selling at 30, you might want to plan on it selling a little bit lower and see if that is still worth it for you.
Then again it depends on your risk tolerance, and it comes with practice over time you start to get better and better at it.
Steve: What sales velocity do you like to see for a product?
Nate: It doesn’t matter honestly as long as — it’s depends how many — it’s all relative right. So like if I have something and I know it’s going to sell immediately, I should say it doesn’t matter. I don’t want to hold something that I think I’m going to hold for longer than 60 days. It you still will, but you don’t want to plan on that. And some people it’s different for them. But you definitely want — it’s not like I’m saying I’m only going to buy things that ten a week.
It depends how many of them I can actually get if I can get them out within a reasonable time frame without the price tanking, or if it’s a seasonal item, I’m not going to load up on Valentine’s grocery items and then have them tank or have them not be able to sell out during Valentine’s Day and then be stuck with lots of perishable inventory. So it’s relative to the situation. I don’t want to buy something — if something hasn’t sold and there’s some people have minimum acceptable ranks like if it’s only once a month that’s — and it depends what the category is, the sales rank varies
And sales rank actually I could have a whole webinar on that. The sales rank is very much not a great way to tell the sales velocity. It’s like an indicator and a point in time, right?
Nate: So if I sold a book and this is the first time I had sold a book ever, if I sold it today, the sales rank is going to look pretty good because I just sold it. So the sales rank if I was saying that 100,000 sales rank means the sales move on per day. That is relative to the fact that it just sold, I might be getting ahead of myself. So sales rank is…
Steve: Yeah that makes sense. I mean it’s relative to a certain time period yeah.
Nate: And that’s the mistake that we made when I was getting started as I was thinking, I was like, oh man the sales rank is reflective of — I used to think like whatever you know in toys. I thought 100,000 in sales rank in toys meant that it was once a once a week or something. And the gist was that logic does not work. The only way to really tell is to look at the Keepa graphs and the CamelCamelCamel graphs and see when they’re actually selling, and again that’s stuff you kind of learn over time. And you learn really quickly once you lose your own money on it.
Steve: Sure. Let me ask you this Nate, okay let’s say you’ve used Tactical Arbitrage and you found some products and you bought them The next thing you need to do is you need to piggyback on a listing and make sure you have the buy box, right? So how does that work?
Nate: Yeah so you always want to see how many competitors are on a listing. Some people don’t like to do a listing if Amazon themselves are on it because they can kind of control the buy box, they can actually, they can drive the price down pretty low. You want to get it within reason. Usually pricing at the same price, it depends on the sales velocity, and again that’s another thing that’s kind of an art I guess that takes a little bit of time to master.
And I know a lot of people buy with the intention of undercutting the buy box by a buck or something and they calculate their margins on that. But it gets kind of vicious. I mean a lot of people have re-pricing set up. So usually just coming in and pricing it at the same price as the buy box, it’s there. And there’s also other tools out there now that will show you how many are actually in stock from the person that’s ahead of you on the buy box. And Tactical Arbitrage can actually show you that, tools like how many can show you that.
And so you can see like, okay, this person that has the box now only has two left in stock, this thing is selling five a day. I don’t need to get crazy on price, you know what I mean. If you’re like, oh I’m out of these, I’m never going to sell out of them, this was a mistake, I need to recoup my money and get my cash flow back up. Yeah that you might want to cut, but it’s — the economics of it is relative to the situation I suppose, usually you want to price at the buy box price that’s already there.
Steve: So let’s say both you and I have 100 units, and the only way we’re going to sell is if we have the buy box, right? So what is the tendency to just kind of inch down the pricing and kind of steal the buy box from each other, and doesn’t that always lead to kind of like a race to the bottom?
Nate: Yeah it does. It depends how fast the product is selling. If I only — with arbitrage you don’t usually — a lot of people that do arbitrage sell very like kind of one off things where they might only have two or three of an item or maybe even just one of an item. So for them to really stake land and really get into it, but on a macro level yes there’s all types of price cutting and this war of attrition that happens this race to the bottom.
And experienced better sellers kind of know when to expect that and they plan around that, and they also sometimes they just go, okay this person is going to keep undercutting me. I’m just going to let them sell out and then I’m going to sell once they are gone. And if they come back, then they have to change their strategy.
But a lot of the bigger sellers have really refined their process knowing what to do and what not to do to make sure that they’re selling their product but also selling it at a reasonable price, because some people have very thin margins and other people have really those really high margins. They do that because they don’t ever want to get to the point where they’re like, I’m selling this at a loss or at cost. So if you have a minimum of like 50 to 75% margins, I mean worst case scenario you probably, it’s more difficult for you to ever actually lose money off that.
Steve: So if a lot of people are selling like a few limited quantities of a bunch of different products, how do you even monitor all the buy box stuff? What software would you use?
Nate: For the buy box it depends. I usually use Amazon’s native tools. I don’t think there’s a lot of people that use re-prices. But when you are doing equal when it was popular, a lot of people in my community use that. When you do arbitrage, you don’t go as deep on things, so there’s not really — it depends. Some people really monitor it closely and some people aren’t as hands on with the pricing and all that. They kind of set it and then move on. Some people use automated services to do it. So it depends. Everybody has their own strategy for it I suppose.
Steve: Interesting, what did you do when you were — Do you monitor the price like a hawk or?
Nate: Yeah I monitor the price pretty closely on things I went deep on. If it was something that I knew that I had really planned on selling at a certain rate, I would come back and monitor that. But if it was just something like a one or two off product, there’s no point in bothering dropping that price or playing with it. If I’m sure that that’s going to sell, I’m not going to be tying capital down. Some things it’s like you always want to make sure that you don’t tie up too much capital in inventory obviously.
Nate: So you do want to make sure that those bigger buts that you’re getting the buy box as much as you would expect it.
Steve: Ad what is like a good expected buy box percentage?
Nate: That’s relative too I suppose, it depends how many you have on that unit you’re trying to sell. And there might be some products where you just keep the buy box until you’re totally out of stock. It’s relative, it’s not like I can say if you price at the same you get 40% of the buy box. It’s based on factors like if you price at the same sometime there’s a lot of that goes in the algorithm. Sometimes even geographical things like if the person’s — if it’s in a fulfillment center that’s closer to the person on the East Coast, they might give them the buy box.
Steve: I see okay.
Nate: There’s a lot that goes into. So it’s not like, that’s not really a stat that I really think is worth too much. If you’re a private label seller it’s huge, but yeah.
Steve: Sure. For private label if you’re a private label seller you always have the buy box. Let me ask you this, so do you ever have to get feedback or does feedback even matter? Like do you use Feedback Genius or do you ever purchase ads? Does any of that stuff matter when you’re doing this?
Nate: So that’s the cool thing with arbitrage compared to private label. I know with private label feedback is everything, reviews are so important. In arbitrage, it doesn’t matter that much because you’re selling other people’s stuff, and usually you’re selling products that are already selling. So you don’t do anything in terms of getting reviews to products. That’s the brands thing and you’re actually, you’re buying it because the sales velocity, it’s already selling at a rate that is good enough for you to have bought it in the first place, that makes sense?
Steve: Yeah sure.
Nate: Instead of bringing a product in the market and hoping to raise the sales velocity by getting positive reviews and all that stuff, you’re actually buying something that says, okay, this is already doing that. I just need it to keep doing that.
Steve: All right so since we’re on the topic of pros and cons of like arbitrage versus private label, would you say that this whole arbitrage thing, it sounds like there’s a lot of maintenance involved, right? Do you always have to be on your toes in managing all your products and constantly getting new buys? Is there anything that’s very — is there anything consistent about like an arbitrage opportunity?
Nate: So the products are — some people find products that are kind of evergreen. They’re called re-plans where you find something that you can keep buying at your local store and keep feeding it there or buying online and keep selling it and making a profit almost like you would with a wholesale account. But even those you can never count on those lasting forever, they usually are short lived.
Steve: Why is that?
Nate: Prices change, people catch on to good opportunities. I mean there’s just so many — it’s hard to keep a good product a secret forever. Just like with private label, people can see what’s selling and then once they say, oh wow, there’s this product that’s selling for $12 or for $15 is on sale at Target every day for 4.99, and somebody is just pumping them and making money. Eventually those kind of get damaged or destroyed when people come in and race to the bottom. So that is one of the downsides to it. You don’t have that same level of continuity, the same consistency. It’s in your kind of constantly like hunting, it’s kind of like actual hunting, and gathering as opposed to like private label could be seen as more like farming.
Steve: Sure, yeah, yeah.
Nate: Than actually going out and killing different animals every day.
Steve: Okay but I guess a big plus of this is it doesn’t require that much capital right to get started.
Nate: Yeah that’s the best part. The best part arbitrage does not require a lot of capital and it is scalable to a pretty high point. You’re not going to become a millionaire probably doing it, but there’s a lot of people that do six figures a month in online and retail arbitrage with some help with giving and outsourcing stuff and having people help them with their prepping and shipping. But it’s definitely easier to get started. You can start by selling things in your house as long it can be listed and you have to list them properly, right? Don’t sell your old MP3 player as a brand new or anything.
Steve: Sure, sure, sure.
Nate: But you can sell books from your house as used, or whatever is appropriate for that product and get started that way. A lot of people — some people kind of take it too far and they’ll do stuff like they’ll go — a lot people go thrifting and I don’t really recommend it. If anybody does that usually is because you have to sell good products. You can’t just sell crappy products and Amazon really doesn’t have much gray area for what is new and what isn’t new. I mean you can sell things as used, but I know a lot of sellers who get in trouble for saying something is like new and it’s really not.
And so a lot of arbitrage sellers are getting suspended for walking that line, and you can do the business without walking that line of selling bad products. So you can start it and do it the right way without dumpster diving. And it can be scaled pretty hard pretty high, and then you can always still get into private label and wholesale as well and diversify once you build that capital, or maybe you’re happy with how much you make in online and retail arbitrage.
I know a lot of people are shocked at how much they have made. I’m shocked at what I’ve seen some people that I know who really, really focused 100% on it. It’s exciting and it’s definitely a cool opportunity. I love talking about it because I know that it is very systematic and people can learn it if they want to. And it’s kind of a nice equalizer for entrepreneurship for example a nice gateway for people to start selling products and actually making some money online and getting paid for what they put into it.
Steve: So we talked a little bit about Tactical Arbitrage already. Do you want to talk a little about your tool, the Storefront Stalker?
Nate: Yeah so my tool is called Storefront Stalker. The name doesn’t reflect on the tool as much anymore. It started out as a tool that the purpose of it was to export the ASINs of competing store fronts so you could see what they were selling. All that information is available on Amazon, but this was just putting it into a spreadsheet so you could review it. So somebody who keeps undercutting you on one of your products or on multiple different products, they probably are sourcing from the same places as me.
Since we’re getting the same products it’s just some logic you have to use I guess. But then you can see what they’re buying and then you can possibly go and buy it yourself, because you guys probably are already overlapping that sources, so they might have things that you didn’t know or opportunities. So with that software you can then take these spreadsheets, then you export and upload them into a tool like Tactical Arbitrage. And I can run that through the software and it can go and find for me different sources for any products.
So Storefront Stalker can go to any Amazon category. I can export that category if I want. Like let’s I do baby toys and then I filter it down to toys that are less than $40. I can export that into Tactical Arbitrage and it will scour the internet for product opportunities. So I guess I only want things that are a sales rank of below 100,000 and I want the profit margin basically to be like 40%. So it will find me products across the internet that match up that I can buy and then sell back on Amazon at a profit. So it’s pretty cool, it’s pretty powerful.
So my tool is kind of the medium between that. It’s not very sexy on its own, but when you take that feature and plug the data that it gives you into Tactical Arbitrage in the CSV files, it’s pretty cool the results you can get. So it’s basically like retail arbitrage on steroids. Instead of going into one store manually, you’re essentially going into 700 stores with a shopping list of things you want to buy, and these lists can be up to 400 Amazon pages which is going to be like 80 or 9200 ASINs. And you can find all these across the internet. You can let it run and then you can go to bed and you can wake up and see what it found.
Steve: Does the software actually buy the product for you if you want to, because I can imagine…
Steve: No okay.
Nate: No, that would be cool if it could and if it were accurate, but the problem is…
Steve: Well I can just imagine waking up and like having to shop at like 80 stores. That would take forever, right?
Nate: Well it depends and some people would love that opportunity if the products were profitable. I mean so like if you have — a lot of them, a lot of times the items might be — you have to double check the item and make sure it’s a perfect match because it’s really incredible when you think about what it’s doing, and sometimes it does it by UPC which is going to be a much better match because UPCs are like Social Security because basically like DNA. They match for everybody, but Tactical Arbitrage also does image recognition and title searches.
So it goes through and it is actually trying to make sense of all this stuff and putting it together. And so you’re going to have some that might be a multipack. So it might look a little bit better than it is. So you have to go through and make sure that the product actually matches. But everyone who’s the most appealing is when you run the software. People that use the software find that the results that it gets are just awesome. I mean it’s crazy what it can do and how much data it can plow through in one sitting.
Steve: So I know you’re going to be biased with this next question Nate, but do you see retail arbitrage – like do you see Amazon like stamping this out in like the next three years or so? Like if you were to look out three to five years.
Nate: So I don’t think that — I think that Amazon is always going to be implementing policies that make it more to difficult to sell anything that’s not perfectly brand new. And Amazon technically doesn’t — it depends how much you look into buying something from a third party store and selling it as new is technically not new. The problem is that I have one of my things I did last year — you know Cynthia Stine?
Nate: I worked with her on suspensions and we had client after client after client was getting reinstated after they were getting in trouble for selling — having issues, false claims about counterfeit products. And we provided Amazon with invoices from Target or from Toys R Us or from wherever they got it, and Amazon was accepting it and letting them back in. So there’s a bit of a gray area.
Do I think Amazon has — Amazon I don’t think has the ability to wipe it out. They definitely have always been — ever since I’ve been doing it, I’ve been doing things have made it change. It made it a little bit more difficult every year. So right now it’s a great opportunity, five years from now I’m sure it will still be an opportunity. It will be way harder. My guess would be it will be harder. But it’s just the nature of the beast and we just tend to take it one year at a time I guess in this.
Steve: Okay fair enough. Nate, where can people find you online man?
Nate: Yes so my blog is EntreResource.com. I also run the Facebook group FBAToday.com, and you can find me across some of the other groups, Tactical Arbitrage I’m in there a lot, and catch me at most of these Amazon conferences. You’ll be seeing me coming with things to sell and buying bears on them.
Steve: It sounds good Nate. Hey I really appreciate you coming on the show and giving us this update on retail and online arbitrage. It’s actually a topic that I actually did not know a whole lot about, and you cleared up a whole lot of things out for me today.
Nate: Cool man. Well I appreciate you inviting me on. It’s great to chat with you and we’re going to meet up in San Diego next month.
Steve: Yeah next month. I’ll definitely see you there.
Nate: All right buddy.
Steve: All right man, take care.
Nate: All right.
Steve: Hope you enjoyed that episode. Based on that interview, I think that retail arbitrage is a great way to dip your toes in the water and start selling online, and Nate has provided some tools and suggestions on how to get started. For more information about this episode, go to my wifequiteherjob.com/episode202.
And once again, I want to thank Privy.com for sponsoring this episode. Privy is the email capture provider that I personally use to turn visitors into email subscribers. They offer email capture, exit intent, and site targeting tools to make it super simple as well. And I like Privy because it’s so powerful and you can basically trigger custom pop-ups for any parameter that is closely tied to your e-commerce store. If you want to give it a try, it is free. So, head on over to Privy.com/Steve, once again, that’s P-R-I-V-Y.com/Steve.
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Now I talk about how I use all these tools in my blog and if you’re interested in starting your own e-commerce store, head on over to mywifequitherjob.com and sign up for my free six-day mini course. Just type in your email and I’ll send the course right away. Thanks for listening.
Outro: Thanks for listening to the My Wife Quit Her Job Podcast where we’re giving the courage people need to start their own online business. For more information, visit Steve’s blog at www.Mywifequitherjob.com.