Lessons learned from reselling

Things have been a bit quiet around here recently, along with some travel (Casino freebies to Atlantis and a pretty sweet suite in Vegas) I’ve been wrapping up the Enrolled Agent designation, became a Xero Certified Partner, and launched a reselling business.  The primary reason for reselling is to challenge my knowledge of accounting and tax and also figuring out if I could ever build something from this that would be low energy, high return as a somewhat passive business.  The jury is still out on that, but here’s some pretty important lessons learned on the way.

Reselling is divided up into (at least) 3 different types

Retail Arbitrage

This involves buying stuff at stores on clearance, scraping off stickers, printing a new ‘Amazon Friendly’ sticker, and shipping it off in a giant box with other stuff.  The most surprising thing to me about this is that I actually enjoy this.

It’s pretty weird, since I’m a guy who values his time, and who hates shopping (I buy new things only when the last one falls apart). I hate deals, sales, and browsing.  At least I did until I found I could sell it for profit.  I also learned that the ‘wasted time’ is good for me, since some of my real job stuff is better with some percolation, and having the chance to step away from the desk/books for a while to think things through on a Macro level makes a huge difference.

Online Arbitrage

This involves the buying of stuff online, often at clearance again.. thankfully it involves less scraping off of stickers in many cases.  What I learned about this confused me.  There are so many sites like SlickDeals that post reselling ‘deals’ for online arb, along with blogs that used to do the same, like Oren’s Money Saver and BigHabitat.  I just can’t figure out how these work…

As a reseller, the last thing you want is a product blasted over the front page of SlickDeals, or broken down on a blog.. it kills you pricing.  What’s more, when you calculate profit, you do it by looking at current prices/fees on Amazon, and that number changes drastically when it appears on a big site.  So when you run your math, just by buying the product, the math changes.. it’s some thermodynamic rule… but basically, you need to know the impact to the price and bake that in.

Online Arb for me has worked when I’ve found a discounted gift card and portal, along with some unusual products, but the things I hear most about (iPads etc) I wouldn’t go near at this point in my business.

White Label

In short, you buy something at wholesale price from Alibaba, have them brand it in your logo, and sell on Amazon.  Huge profit potential, but requires you to develop the brand.  I’ve not White Labelled anything yet, but I see this as the next evolutionary step in any reselling business.

Prep Centers

Not a type, but a scaling method.  Using a prep center means you ship to them, they do the scraping of labels for you, for a fee.  This is a huge benefit if you want to stop storing boxes in your living room.

My Evolution

I started exploring Online Arb and Retail Arb with a goal of $200 per day in simple sales, products that sell at perhaps $15-$60 each, and have diversity.  In order to understand how fast things move I bought a bunch of different items, with no niche in mind, simply looking at price, ranking (popularity of sale) and ROI.  Thus far, i’ve found one item that works, selling perhaps 30-50 units in a month at $25 per sale. This week I diversified within this channel and bought 2 competing products to see what that would do to things.

My goal is to next use a prep center, so I start to understand the impact of those on the time required to move a product from purchased to sold, and the cost implications.  Once that skill is gained, I would want to white label and use the prep center to fulfill.

The ideal goal here is to click a button to order from a warehouse, have it shipped to a prep center, and forwarded to Amazon, all I would be using is a little time to market the product, and some credit line.

Mistakes Made

• On my first week or two, I bought things thinking they were at profit, but they actually were losses.  Some items just code weirdly on Amazon, and fees can be a lot more than anticipated.
• Last week, I bought two laptops thinking they had a 50% markup, only to have it pointed out that they were a different model, and they actually lost money (breakeven after rebates).
• I didn’t buy a shipping scale, so guessed at weight of boxes, meaning on my first 2 shipments I paid more than the next 6 combined.

Lessons Learned

• Reselling is highly competitive, those who resell for MS (very low margins) are a real annoyance to resellers who actually resell.
• Despite the competitive nature, groups of people help one another, I’ve been helped tremendously by Trevor at Tagging Miles and Phil (Milesabound) along with having some great deals shared with me by a group of guys on the Forum.
• Taxes for reselling are a pain in the backside.  The sales tax debacle and Nexus is an ongoing discussion.
• It’s really easy to overspend. In my case, I’m already over my initial float limit, and if things don’t sell, I’m going to have to dump more money into the business.  It is very easy to buy something, then another something, then another something… be careful!
• Your float limitations really drive home the concept of NPV and IRR.  I started my business with $6,000, but spent about $1,000 on software, tools and licensing in week 1. That investment is important, but it makes you think hard about paying $40 per month or $400 per year.
• Accounting for reselling is also a pain in the arse, I got certified in Xero (software like Quickbooks) to show a level of competence, but even with that, and a long call into support, we had trouble how to account for a very simple transaction like:
  • Go through portal to buy gift card
  • Go through portal to buy inventory
  • Partially pay with GC
  • Pay balance with Credit Card (company) or variations, such as personal card reimbursement

Based on how annoying it has been to set up the company, establish reimbursement plans, and create a strong set of accounts, I think most people who resell have a hot mess in terms of this, by hot mess I mean they are paying a ton of taxes that they needn’t be.

Despite that, one of the biggest lessons for me has to not let the accounting/worries stop you.  It is easy, especially for someone like myself, to focus on accounting for everything before selling, but all that matters is the sale, that is income, the rest is paperwork and a little tax.

What’s next?

I’m pretty much done with my inventory filling, I’ve sent in a bunch of products, and now will watch to see what works and what doesn’t and if I can find a way to focus on streamlined transactions.  I seeded the company with $6,000 and currently have about $9,000 in credit card payments to make. I’ll see how that goes, and once I get to about $1500 in free cash again, will hopefully invest in my first white label product.

What I learned most of all, it’s kinda fun, but really dangerous, and very different from MS.