10 Reasons Why People Fail With Amazon FBA Online Arbitrage
There’s no one-size-fits-all success formula for online arbitrage. A seller’s success or failure on Amazon largely depends on the right approach to product selection.
Critical components of online arbitrage are the high-margin products found through product research.
Wrong product research methods and lack of data about the products you purchase for reselling, alongside a lack of knowledge about Amazon business, may lead to losing money instead of earning.
Keep reading to discover why sellers fail with online arbitrage and how to avoid losing money in doing this business.
10 Reasons Why Sellers Fail With Online Arbitrage
The main reasons why you can lose money selling with an online arbitrage model are related to reselling unprofitable or problematic products.
Also, you must thoroughly account for all your expenses, including the Cost of Goods, Amazon fees, taxes, shipping costs, and more.
On top of that, as a reminder, product research for online arbitrage requires a lot of time and patience unless you use product research seller tools.
1. Inadequate product research methods
Selecting a product for online arbitrage involves understanding the search criteria, choosing the popular product category, and the item itself.
Product research involves checking the item’s sales potential, verifying sales restrictions, and ensuring it will not trigger account health problems.
If sellers research and estimate the wrong metrics, they may select an unprofitable product and lose money on it.
Criteria to estimate in the online arbitrage deal:
- high profitability (ROI over 30%);
- deal’s products should have moderate to low competition;
- they shouldn’t be sold by private label brands or Amazon;
- they mustn’t belong to a restricted category;
- deal’s products shouldn’t have triggered IP claims or other account health issues.
Related: How to find Profitable Products for Amazon Online Arbitrage
2. Selecting problematic product
When selecting a product to resell, merchants must verify products for sales restrictions, alerts, and other flags. They must ensure the product didn’t trigger any problems with the seller account health in the past.
When checking products’ sales history, you must also verify that a product hasn’t triggered suspected intellectual property violations, received intellectual property complaints, product authenticity customer complaints, product condition customer complaints, restricted product policy violations, and other account health issues.
Related: Amazon Product Policy Compliance - Guide For Sellers
Also, a product you select should not belong to a restricted category or have sales limitations (it shouldn’t be oversize, meltable, HazMat, etc.), because this may involve extra costs or delivery problems.
Suppose you fail to check these parameters and start selling a problematic product that, for instance, has intellectual property violations. In that case, Amazon will deactivate your listing and may suspend your seller account. That will mean losing money.
You can get warnings about product restrictions and items with violations of intellectual property rights, reviews policy, authenticity complaints, and more, with Seller Assistant App’s IP Alert feature.
Seller Assistant App marks products and brands generating account health issues with a red triangle icon. Data is collected daily.
3. Underestimating competition
When assessing a product’s sales velocity and potential profit, you must base your calculation on competitors' number, types, and prices they offer.
You must determine how many FBA and FBM merchants sell a product and estimate its potential sales. Products with high competition of more than 10 sellers on the listing may generate price wars for the Buy Box. That may mean entering into an ongoing fight with a doubtful result.
Also, it’s better to avoid products where Amazon is a seller or in the Buy Box because competing with them is challenging. In addition, Amazon is reluctant to give away its Buy Box.
4. Overestimating product sales potential
Amazon doesn’t show how much the product sells. However, the Best Sellers Rank (BSR) indirectly indicates how well the product sells on Amazon compared to other products in its category.
BSR constantly fluctuates; however, its upward and downward trends show if the product sales go down or up.
You must correctly estimate product sales potential based on BSR. You should also remember that you can’t calculate estimated sales figures based on BSR alone.
In addition, the number of your product sales is affected by the number of sellers on the listing.
Overestimated sales may lead to profit loss and cash flow cuts.
Related: Amazon Best Sellers Rank – Everything You Need to Know
5. Inaccurate accounting of costs and fees
Amazon charges sellers numerous fees. You must accurately account for all your costs, especially if your expected profit margin is low.
You must calculate your Cost of Goods, sales tax on Cost of Goods, Amazon referral fees, FBA fees, VAT, monthly storage costs, and third-party logistics costs (shipping costs and preparation expenses).
If you fail to account for all expenses, you won’t be able to reach your target ROI and profit margin.
Also, as a reminder, some products may incur extra costs, such as additional packaging costs on fragile products. You must also consider them if your product belongs to such a category.
To accurately calculate all Amazon fees, sellers use the FBA&FBM calculator letting them quickly calculate all essential product metrics.
6. Miscalculation of product profitability and margins
In addition to accounting for your expenses, you must correctly estimate your product profitability. That is necessary because if the profit margin is too low, the product is not worth selling. You must estimate potential sales and set the optimal prices.
To make sure you will not lose money on the product, you must calculate the profit you’ll get, Return on Investment (ROI), and margin.
To get profit figures, you must deduct all expenses from the product's selling price. ROI will show you the efficiency of your investment. You’ll get the ROI figure by dividing the profit earned on an investment by the cost of that investment. It’s expressed as a percentage. The margin shows the share of your profit in the selling price.
Miscalculating these figures may mean purchasing low-profit products or even making a loss on them.
To quickly calculate product profitability, sellers use the FBA&FBM calculator.
7. Focusing on sales instead of profit
Sales volumes are essential; however, you mustn’t forget that your primary business target is earning money.
One example of focusing on sales instead of profit is a price war. When in such a war, sellers are often ready to sacrifice all their profits and even make a loss to win the Buy Box. Constantly engaging in price wars is a losing game in the long run because your main goal is maintaining a healthy and profitable business, while price wars decrease your margin.
8. Wrong expectations
Online arbitrage sellers are spending most of their time on product research. That is a routine task; they spend hours daily selecting new products to resell.
If you’re expecting to raise tons of cash with this business during a couple of months, most likely, you will be disappointed because your hopes are unrealistic.
If you’re going to engage in online arbitrage business, be ready to dedicate your time and effort to it.
Luckily, there are seller tools that help you automate this complicated task. Seller Assistant App is one such tool. It’s a powerful product research instrument for online arbitrage sellers that can help you see all essential product metrics right on the Amazon search page and save results to Google Sheets.
Also, if you don’t have enough experience with product research or want to start an online arbitrage business immediately, you can purchase ready-to-sell verified deals lists on the Seller Assistant Deals marketplace.
9. Poor inventory management
Monitoring and timely reordering your inventory is essential. If you have slow-moving FBA inventory, it may incur long-term storage fees.
Also, running out of inventory often means losing money. Amazon may revoke your Buy Box, and competitors will grab your market share. Therefore, you must timely reorder your goods.
10. Lack of learning
If you’re unfamiliar with the Amazon business, it’s better to start by studying it and enrolling in training for beginners.
Product research for online arbitrage requires specific experience. You must understand what metrics to focus on to find profitable products.
If you don’t have enough experience but want to start selling without risking your money, you can purchase ready-to-sell verified deals lists on the Seller Assistant Deals marketplace.
A seller’s success or failure on Amazon largely depends on the right approach to product selection.
Critical components of online arbitrage are the high-margin products found through product research. Wrong product research methods and lack of data about the products you purchase for reselling, alongside a lack of knowledge about Amazon business, may lead to losing money instead of earning.
Seller tools can help you with product research. Seller Assistant App is a popular new-generation product research tool offering an impressive portfolio of valuable and handy features. It allows Amazon sellers to perform advanced product analysis and sales estimations.
Seller Assistant App is equally helpful for FBA beginners and Amazon professionals. It’s a must-have tool for all sellers engaged in product research.
Seller Assistant Аpp is an all-in-one extension incorporating features vital for product research. Advanced IP Alerts can immediately tell you if a product has any sales restrictions or has led to problems with account health in the past. It combines an FBM&FBA profit calculator, Quick View, Stock Checker, and Restrictions Checker in one tool.