Frequent Miler had a great post yesterday about Manufactured Spending in 2016 and beyond. The truth is, he’s right. Manufactured Spending has gotten harder. Great opportunities like the Redbird, have come and gone in past years, and while they may come again, you can’t necessarily rely on the adage of “When one door closes another opens.”
I found Frequent Miler’s comments about reselling interesting:
The reselling option, in particular, seems like one that can never go away. Sure, opportunities for reselling at a profit may decline as more people get involved, but I don’t see that as a deal breaker. Reselling is just hard enough, and risky enough, to keep the hordes away. Now its time for me to dust off my old Amazon Seller account…
As I reflected upon earlier in the week, I got into reselling for the miles and points, and have transitioned to a greater focus of profit, and let the points be the by product of the effort. Realizing that many readers of Frequent Miler, as well as others, such as this blog, Big Habitat, and Oren’s Money Saver may contemplate reselling, I thought I’d offer a bit of an example of the kind of risk that reselling entails, both the good and the bad side of it.
Considerations When Reselling as a Method for Manufactured Spending
You want to get products that sell quickly. Like Really Quickly.
Remember that you don’t get paid immediately by Amazon, payouts are every two weeks. So lets say you purchase a product for $1,000, if you buy it in store, you could really get it into Amazon within 2-3 business days. So now you’re carrying that $1,000 charge on your credit card for 3 business days. If it sells quickly, you could see that $1,000 back in time for your credit card bill. If it doesn’t, you’ve got to somehow pay that $1,000, while you wait for the product to sell, and Amazon to transfer payment.
A great deal found on a blog may hurt prices.
As reader JS commented in my Reflections on Reselling Post:
Ever check out any of those sears free for point items posted by BH? Items selling for $70 when posted drop to $30 w/in two weeks.
In fact, Oren even declared that he would not be sharing as many deals in the future, because it can hurt more than it can help. You’ll notice, I seldom share deals, unless they are outlandish, like a Bidet, or 3D Printer — incidentally, I’ve shipped my first 3D Printer in to Amazon, waiting to see how it sells.
Always add a product to your inventory before buying!
You’ve found a great deal, maybe it is outlandish, but, golly, it is a real money maker! You scoop up everything you can find, only to realize that Amazon has some sort of a restriction. You could try to get ungated, but that wastes valuable time in converting from product to liquid cash.
Returns could wipe out all of your profit or worse, mean a significant loss
No matter how great a product you have, buyer’s remorse is a real thing. Worse yet, is when the product may be legitimately defective. The biggest time suck I’ve had, is trying to repair a laptop that I had returned, just to try to make a loss, less of a loss. It’s important to note, if you are able to sell returned items at all, it is usually as “open box” or “refurbished” which immediately drop the price you can get.
Apple Watch Example
The Apple Watch has been an interesting product over the past couple of months. The 38mm Apple Watch Sport normally sells for $349 Target offered a $100 gift card with purchase, effectively dropping the price down to $249 per watch. Best Buy cut the price too, cutting $50 off the price, dropping the price down to $299 per watch.
Oren talked about this in one of his Turnover Tuesdays, noting that Best Buy did a further price cut, bringing the Watch down to $249, just like Target.
But way, the deal gets better at Best Buy – because, remember that whole Apple Pay thing? Well, Best Buy takes Apple Pay! So now you’re buying Apple Watches for $249, getting 11% now, 11% later (in theory), and double dipping with your Best Buy Rewards. So you’re approaching the “Perfect Storm” the final nail in the coffin was that Best Buy’s sale is like the sale that never ends! It continued after Christmas!
Looking at the impact on price on Amazon
Here’s the price today:
Now mind you, that price is ~$55 less than what Apple is selling it for.
Let’s take a look at the roller coaster ride it took.
If you look at the past 3 months, you see the price increases leading up to the sale, and then takes an unceremonious drop fairly consistently until just before Christmas, where folks clearly were trying to empty out inventory, then rose to what appears to be its new level of between $280 and $295.
Lets do the Math
So let’s say that you got in on this in a mid-tax state, say, Maryland, so you paid $249.99, plus 6% tax of $15 for a total cost of $264.99 but you paid with Apple Pay, thus earning you $29.15 Discover cash back now, and $29.15 Discover cash back later. You also gave them your Best Buy Elite Plus (since you buy a lot at Best Buy) Rewards number, so you got 331 Best Buy Rewards Points, figure a value of $0.02 per point (derived from $5 / 250 points), and you’ve got another $6.62. your net cost is: $200.07 if you account for both sets of Discover cash back.
Say that you got bought the Apple Watch and the Buy Box was in the $325’s, but you want to move it fast, so you match the buy box price today, and sell for $295.99 — You’ll pay $34.74 in Amazon fees, netting you $261.25.
So that’s like $61.18 in profit, right?! Sort’ve, but you’ve got to wait a while, since, remember, we anticipated that the total out of pocket cost was $264.99, so on paper, you’ve actually lost $3.74.
Of course it’s easy to do an example with cashback, since every point equals a penny. But things get more complicated with manufactured spending for miles and points. But the message is still clear, there is risk when you resell. My recommendation: Always resell in search of profit. Maybe factor in the cost of the points in the opportunity cost, perhaps you’re going through a Shopping Portal, and you’ve got to choose from Upromise at 5% or Alaska Mileage Plan Shopping at 2x. The benefit of Cashback Monitor, is that you can add in your own values for points, which helps, but you have to realize what your opportunity cost is.
What can we learn from this?
Even great looking deals on quick sellers can result in a loss. Popular items are great, especially with well timed, short duration sales from major retailers, like Best Buy, and Target. But when a major retailer (looking at your Best Buy!) loses their mind and lets a sale go on for a month, everybody is hurt, at least those reselling. When I did things with Apple Pay, I was searching for products that I could make a profit before even accounting for the Discover Apple Pay cashback. That’s my approach, plain and simple.
I want to be clear, I’m not trying to dissuade anyone from jumping into reselling. I think there is so many products out there, with so much opportunity, that if everyone is focused on profit vs. speed of conversion, we all win. The proverbial “break-even” crowd can hurt profits, but, when sticking to particular products that are high velocity anyway, I tend to think it can’t hurt all that much. Just like Oren stated that he will continue to post iPad Deals, since the value doesn’t drop after posting them. If you are looking for a quick turn, and are willing to accept the risk and potential loss to convert quickly, then stick to products that sell really fast, like Apple iPads. If you are looking to grow reselling into something more, and let the points flow in, even if it’s from 1x spend, then look deeper, and more importantly, set aside funds for float–so you avoid paying credit card interest fees.
My goal has always been to teach folks to fish, rather than giving them a fish. To that point, I’ve put together a number of resources for resellering, that I’d encourage any beginner to take a read through, start here: Beginner’s Guide to Fulfillment by Amazon, and definitely click through the following posts. There are a lot of great opportunities out there.
24 thoughts on “Considerations for Reselling as a Method for Manufactured Spending”
I have been reselling on amazon for 3 years you need a strong stomach and be willing to risk all. You have to be able to carry some costs of money especially when everything does not time out correctly or there is competition on your product which cause prices to fall. The waiting time for payment is also burdensome as sometimes I carry 15 K for two months and have to cover my charge cards bills.
I have stayed at some awesome places and flown business class for free which keeps the wife happy to deal with all these boxes in our place HAPPY
@Michael – great points. There is a lot of risk involved.
Woohoo! I made it into a blog post! I’ve really made it now!
If you are lucky enough to have an old seller account, I do from MFing text backs years back, you can actually request daily payouts. It’s nice when your CCs start to get maxed out.
@JS – You are a star! As far as payments, you are right. A couple of friends of mine have older seller accounts. I’ve been doing this for a few years now, but apparently not long enough to be able to request daily payouts.
Yea, I got lucky. I only started this summer, but I sold some college text books back when I was in school so that got me grandfathered into daily payments.
You ARE lucky. At least, as a professional seller, I get my payments within the two week span. Being paid three weeks in arrears, at best, makes the need to watch buys until the sells catch up even more challenging.
If nothing else, knowing that if I have a sale today, I’ll get paid on Monday, makes it worth the $40/month!
The Pro account pays for itself very quickly if you are doing any amount of selling.
@JS – I totally agree. But, for folks that might just be dipping their toes in, it is good to have that alternative.
Its almost a full time job. The sourcing, shipping, accounting are time consuming. Returns are a big ding on profits and a time suck. Taxes are confusing and require registration for sales tax within your home state at least, possibly others. I opened S corp to shield myself from liabilities…. I hire family to do some of the shipping.. again more accounting. Its not quick and easy money, you can rapidly get burned on products that dont pan out. I bought a dozen watches that I thought I had a high enough margin of error for. Amazon decided to sell them too, and one thing I know about amazon is that they are very aggressive with their pricing. They will price you out, I ended up losing quite a bit on some of the watches.
I forgot to add that I spend more time on the accounting front the actual selling.
@Nickel – yeah, the accounting part is what I’m trying to get more efficient on. Spreadsheets are not as helpful. Inventory Lab has helped, but still takes time to make sure everything is tracking properly.
Thanks for the warnings to the unwary, Trevor. I see people jump into reselling because HEY, I can make money AND points! and, suddenly, Apple watches are discounted, they didn’t take that possibility into consideration, and their profit is now out of pocket, instead.
Or, they find they’re getting a W4 and panicking, because the thought that profit = taxable income never crossed their minds.
Reselling is a BUSINESS. If you really don’t love the idea of being in business for yourself, do NOT get into reselling. Yes, it can be profitable. Yes, you can lose money. Those two statements, in concert, are absolutely understandable to those with an entrepreneurial bent. To the employee mind, they are bafflingly inconsistent.
Your record keeping will take time, and if you do your own taxes, small business tax software is MUCH more time consuming to complete than simple “I have a job and a mortgage” software.
For me, the upside is worth it. I had to learn a new set of skills, because this business is different from my old one. I ENJOY learning new skills. Even better, as the more commonly used MS methods keep drying up, I’m fairly bomb-proof: I can continue to ramp up my purchases, and it ramps up my profits, as well.
I’m continuing to learn what are my own best practices. I owe a big THANK YOU to BH, for opening my eyes to reselling. And to you, and others, for pointing out ways to improve both my use of time, and my bottom line.
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I am a longtime seller, short time MSer. If you only look at the low hanging fruit, in MS or reselling, you will get beaten up. Doors keep closing, margins evaporate. I never determine profitability by including rebates, cash back, points, Ebay bucks, etc. That is all gravy, what pays for the daily spend of self-employment. I left my job to do reselling full time and haven’t looked back. It isn’t always easy, the trap is when it seems effortless. The FBA game, in particular, keeps evolving. If you look, there is plenty of free and low cost information on what it takes (McGrath, Cockrum, Malik). You’ll make more money if you can carry inventory. Popular items move fast, but the margins keep eroding. Anything with more than a hundred sellers will be under pressure. Don’t forget local/online classifieds. I listed some things that were tanking in price on Amazon and got a good response (and no fees!) I merchant fulfilled almost everything I sold last year, so I always have inventory at home. Good luck!
Dave- so did you buy the product in order to sell since it was tanking on Amazon or did you buy and before you got it in it started tanking? What is your strategy when buying, to keep at home for a little and send eventually? Get it out quick?
I bought some products that everyone else bought at a good price. Since many of the sellers weren’t primarily concerned about profit, the price kept dropping. Offline selling doesn’t have the burden of fees and you can price between Amazon and the retail store. It can take time, versus a quick sale on Amazon (at a lower price or loss).
I have used FBA a lot in the past, but this season, I merchant fulfilled almost everything. That meant packing and shipping hundreds of items. Sometimes I make money on shipping myself, sometimes I don’t. Obviously, it takes more attention than just shipping it all to Amazon. There are advantages to both methods, though most of what you read online favors FBA. I have never had lost inventory at Amazon, but it is common with newly opened warehouses (Baltimore this year). That can hurt if they find it after the price drops.
I can float more inventory cost than a lot of sellers who are just buying and hoping to get paid before the bill is due. This has worked out better than I expected. During the Hopiday season, I buy lots of things on sale. I typically end up with items that everybody bought and I didn’t sell because the margins collapsed. Because I can hold some inventory, I have benefited a number of times from items that run out of stock at Amazon (and frequently the retail space). I am sure it is purely luck that I end up selling things for much more than retail price. In some cases, the manufacturer stops production and the price climbs. That will never work for Ipads and such that get replaced by new models all the time. Some Black Friday purchases like Lego sets, Tonka trucks, Nerf guns and even Craftsman tools have done quite well. This may take a year, which is longer than a casual seller can wait (or afford!) That’s just my experience.
@Dave – I live less than an hour away from the Baltimore FC, and have yet to send anything there… I have seen some lose FC’s lose more than others. Great points on the “long tail” products that take as much as a year to finally sell, but with good margin.
I am also within an hour of Baltimore, but none of my FBA shipments have gone there yet. In 2014 it was a new warehouse on the West Coast that was losing inventory, this year I guess another new facility will lose inventory. I figure it’s growing pains, some blog posters assume theft.
When the local FC opened, my wish was that I could drive my inventory directly there. Every damaged package I have ever had was through UPS. Not having to deal with shipping for at least some of my FBA stock would be nice. I’ll keep dreaming!
@Dave – I agree, that would be an awesome opportunity – being able to drop stuff off right at the FC. Quicker time to inventory, etc.!
Will they all drop off at FC? I live close to a FC.
Don’t we all wish? We pretty much all live close to an FC, these days; there’s one just on the other side of downtown from me.
But NO, my stuff tends to go to Biloxi, for some insane reason. Unless it goes to California.
Shrug. It’s part of what I need to factor in: will it get there, and be in inventory in time to make it worthwhile to have bought it in the first place?
This year, I waited too long to get any toys, but the ones I got, sold nearly instantly, once they were in inventory. I got Leappads when they were on sale at TG, and they were ALSO in an ad that had “buy one, get one 50% off. I cleaned off the shelves at my local TG. Should have thought about it for an extra 45 seconds, and gone to any or all of the 3 others that are within five miles of me, as well
Illness put me behind this year on shipping to FBA. So I merchant-fulfilled a ton of orders, eliminating the uncertainty of Amazon, UPS and other warehouse snafus. I had only one package arrive late and got reimbursed by the carrier, customer was pleased to get a refund and not upset. I had some hot sellers that I couldn’t keep in stock. Luckily, I had no delay between buying and putting them up for sale. Took advantage of price spikes.
Unless you just can’t spare the time, consider keeping some stock yourself. You may lose some Prime folks, but you diversify the risk that FBA poses to your sales.