Over 60% of Amazon merchants are resellers in some form. But just because the business model is popular doesn’t mean it’s easy.
Many new Amazon sellers think they’ll profit in no time by reselling clearance items from Walmart. They quickly realize the competition is fierce, and there are more barriers to entry than they imagined.
During my years as an Amazon account executive, I worked with many resellers and saw them make the same mistakes—breaking compliance with Amazon’s policies, ignoring needed product approvals, overestimating sales, and underestimating competition, just to name a few.
To help you avoid these issues, I’m sharing my top five tips for reselling on Amazon, based on my own experience working with resale businesses.
1. Get Approval to Resell Your Products
Before you start reselling on Amazon, you need to make sure you’re authorized to sell your products.
In recent years, brands large and small have started restricting the resale of their products on Amazon. For some, the goal is to minimize counterfeits; others want less Buy Box competition from resellers.
While there’s no official list of restricted brands from Amazon, third-party lists of restricted brands stay fairly up to date. New brand restrictions are added all the time, so make sure to check these lists before pursuing a new product.
The good news is that just because a brand is restricted doesn’t necessarily mean you can’t sell its products. You can apply for Amazon’s approval to sell that brand’s products. Keep in mind that not all brands are open to these appeals.
You can streamline the approval process by doing one of two things when you buy your inventory:
- Get approval directly from the manufacturer. Whether a brand is restricted or not, it pays to get a letter of approval from the brand you want to sell.
- Work with an authorized distributor. While it’s preferable to buy directly from the manufacturer, some brands designate official distributors for their products. Sourcing from one of these suppliers will help you prove the authenticity of your product, although you may still run into authorization issues without a letter of approval from the brand. To find an official distributor, check a wholesale network (like Wholesale Central) or google “brand + authorized (dealer, supplier, wholesaler).”
If your resale business is located in the United States, it will also help to get a resale certificate. This allows you to purchase stock from a manufacturer or supplier without paying sales tax, which can amount to a lot of cost savings over time.
You may be tempted to skip the authorization step if your product’s brand isn’t currently restricted, but a brand’s status can change overnight. Authorization issues frequently cause account suspensions and have left many resellers with products they can’t sell.
Take the time to research your suppliers and gather the right documentation. It will save you a lot of frustration in the future.
2. Buy Inventory Directly from a Manufacturer or Distributor
A lot of hype has been built around retail arbitrage—buying products on sale from a retailer (like Walmart) and then flipping them on a marketplace like Amazon. The idea is that you can find products dirt-cheap and sell them at a good markup.
Some sellers do have success with retail arbitrage. However, reselling on Amazon is an incredibly price-competitive business. With retail arbitrage, it’s difficult to consistently find products that give you the margins you need to compete. You may occasionally find a good enough deal to turn a decent profit, but tight margins and inconsistent product availability make it nearly impossible to build a sustainable online business with retail arbitrage.
The other major issue with arbitrage is authorization. Amazon has started being much more vigilant about counterfeit products. And while your retail arbitrage inventory may be 100% legitimate, if you can’t prove that your product is authentic, your account will be suspended, and your listing will be removed.
To get your account reactivated in this scenario, you must provide an invoice from your supplier and a letter of authorization from the manufacturer. As many retail arbitrage sellers have found out too late, a store receipt is not sufficient proof of authenticity. Likewise, most brands aren’t willing to give you a letter of authorization for products you purchased from a retailer, since they can’t personally confirm the quality or authenticity.
It’s safer and more cost-effective to source your products directly from the manufacturer or from an authorized supplier. You may need to invest more money in your stock up front, but usually you can get wholesale discounts that offer far better profit margins than retail arbitrage. Not to mention, your supply-chain documentation will be in order, so there’s less risk.
3. Analyze the Competition Before Investing in Inventory
When a shopper goes to make a purchase on Amazon, the Buy Box is the default purchase option on the product page. Not surprisingly, the majority of sales happen through the Buy Box (the popular belief is 82% of sales, but that’s really just a guesstimate).
The problem is, as a reseller, you don’t automatically get Buy Box sales. Every other seller who carries your product competes to be the one who “owns” that default purchase option. You will still appear on the product page as “Other Sellers on Amazon,” a widget that often appears below the fold.
Unless a shopper immediately notices a lower price in “Other Sellers” (as in the example below), they’re unlikely to take the time to click through and browse other options when Amazon makes it so easy to complete their purchase through the Buy Box.
The exact algorithm for the Buy Box isn’t known, of course, but it is clear that the two biggest factors are your price and your fulfillment method—specifically, whether or not your products are eligible for Amazon Prime. (It should also be noted that new sellers are not typically eligible for the Buy Box, sometimes for weeks and months.)
Fulfillment by Amazon (FBA) gives you a big boost toward winning the Buy Box, since it makes your products Prime eligible and allows Amazon to guarantee fast shipment. But given the popularity of FBA, you’re probably not the only reseller whose products are being fulfilled by Amazon. That makes it less of a competitive advantage and more of a necessity.
Given that reality, let’s focus on price. You can’t run a business if you’re constantly in a race to the bottom, but you also won’t succeed on Amazon if your prices aren’t competitive. The solution is to analyze a product’s seller landscape before you invest, to make sure you have room to generate both sales and profits.
Consider these questions when assessing a potential product.
How many other resellers are there? A few other resellers might be manageable, but you don’t want a product that already has dozens of resellers. If the product is already listed on Amazon, you can easily find this information by clicking on “Other Sellers on Amazon.”
How established are these resellers? A good seller reputation does affect Buy Box ownership (although no one is entirely sure how much). Analyze your competitors’ seller feedback to see what you’re up against—and don’t just look at their aggregate score. Read what customers are saying about them, too.
Is the brand manufacturer one of the sellers? It’s usually a bad idea to try and compete directly with the brand you’re selling. While it is possible to win the Buy Box in this scenario, the brand often gets preference and has the advantage on price because they don’t have to deal with middlemen.
To determine if the original brand is competing, first look to see if there’s a link to their brand store underneath the product title. Then, check the “Other Sellers” list for either the brand name or “Amazon.com.” (If you see Amazon.com listed as a seller, this means Amazon is selling the product on behalf of the brand.)
How tight is the price competition? Check to see how closely the various resellers price their products. In the example above, there’s a fairly wide range of prices—one seller offers it at $7.82, the manufacturer sells it for $8.56, and eight other sellers are charging $11 or more. This range leaves more room to set a price that’s both competitive and profitable.
Do you have a competitive edge on price? When analyzing your competition, consider whether or not you can realistically beat their prices. Assess just how low your rate can be before your business becomes unprofitable.
To be profitable reselling on Amazon, you must make sure you’re capable of competing before you commit money to a product.
4. Diversify Your Product Offerings
No matter how carefully you analyze your competition or how good your manufacturer deal, one new competitor (or change in supplier policies) could render your product unprofitable almost overnight. To build a sustainable resale business, don’t overcommit to a single product.
Why? Because competition and demand constantly fluctuate on the marketplace. If you have one product and it doesn’t sell well, your inventory ends up sitting in an Amazon FBA warehouse. You’re not only racking up fees, but you’ve also locked up your cash in a product you can’t move. This is especially dangerous with reselling, because it typically has thin margins.
Start small. It’s better to build incrementally, even if it means you don’t get the juiciest discounts right away. Learn which products sell well for you and what inventory moves quickly to build a healthy supply.
5. Use Amazon Sponsored Products to Promote Your Resale Business
Facing thin margins, many resellers think they can’t afford to promote their business. But Sponsored Products advertising is actually one of the best ways to affordably grow your resale business.
Sponsored Products ads run only when you own the Buy Box, so your promotions never help competitors; your ads send sales directly to you. So, while you might not be able to spend as much on advertising as sellers with higher margins, you can still use ads to drive profits.
Use the break-even Advertising Cost of Sale (ACoS) metric to determine how much money you can spend on advertising before you hit zero net profit. (There’s a lot of nuance to this metric, so we wrote a whole guide to ACoS on Amazon.)
Once you have this break-even ACoS figure, you’ll be able to judge whether or not your ad campaigns are profitable, so you can manage your campaigns accordingly. Read our guide How to Make Money on Amazon with Sponsored Products for more ideas on how to do this.
In addition to using break-even ACoS, Amazon resellers should leverage negative keywords to filter out brand names from advertising campaigns. When a shopper searches for your product with branded search terms (“Burt’s Bees hand cream,” for example), your listing will naturally appear high in search results.
Save your ad dollars for generic search terms (like “natural hand cream”) to reach shoppers who weren’t already looking for your exact product. Generic search terms also offer a much higher volume of searches, making it a better use of your budget.
Want to run tight, profitable Amazon ad campaigns but don’t know how? Learn how PPCWIZ can help.
Reselling on Amazon Can Be More Than a Side Hustle
The internet is full of hyped-up shortcuts and stories about how much money you can make flipping clearance items, but the truth is that a resale business takes work to build, just like any other Amazon business model.
Treat your resale business as seriously as you would your own proprietary product. Reselling on Amazon can be profitable if you’re willing to put in the work and build a legitimate, competitive business.