Buy Low, Sell Low : Making Money on the Front End

I come from a background in wholesale produce.  As in fruits and vegetables.  My whole life, people have said “oh…so like….you got a pushcart?”

Yup.  That’s what I picture when the multi-level, multi-billion dollar agriculture industry comes to mind.

Whatever, point is I grew up in sales, working on the produce market, the most vile and despicable place this side of Mos Eisley.  And the most ultra competitive.  You wanna talk race to the bottom?

You haven’t seen anything like 35 competing companies, all sitting directly next to each other, connected by a common walkway, all holding an inventory of a million dollars or more of fresh fruits/vegetables, all of which is rotting by definition of having been harvested, fighting to get orders from the same pool of customers.  The race was fast, furious, and constant.  And I do believe we have all felt that pinging pain of a tanking price point.

One of my mentors early on told me you cannot make money on the sell, all the profit comes from the buy.  This was the dumbest thing I had heard, because at the time I was 21 years old and factually speaking I knew everything.  So he was flat wrong, and I slumped my way forward, trying to sell for higher prices on falling market after falling market.

Well, after years of trial and error, turns out he was right.

True profit is made on the front end, in most of the cases where something is being sold.  Whatever the business seems to matter not.  What matters is the skill in purchasing.  Because nearly anyone can sell, given the right circumstances and surroundings.  Buying, however, requires vision, skill, and the ability to take all tools and insights into account.

How does that apply to FBA?11830127_10207307895795620_430976059_n

Well…..let me tell you.

Take this item, for instance.  It has been sitting at $18.00 and selling for a week (which is how long I’ve watched it).  Which is fine, based on a $7.99 buy cost from Kohl’s.  Its a total return of $3.20, which is 40% ROI.  Regardless of most business models, that ROI on a toy ranked in the 35k range ATOP (at time of posting) is acceptable.

But that’s at $18.00.  And…..as we all know, there is always a race to the bottom when something is a clearance item at a national chain.

So, guess what happened a few days later?  This may come as a dramatic surprise, but someone dropped the price from $18 to $17.90 to $17.75 to $17.50 to $17.49 to $13.90.

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$13.90?

Seriously?

Why would anyone do this?  Why does this always happen?  Why would anyone in their right mind want to begin the race to the bottom, a losing proposition in which the only winner is Jeff Bezos and the Amazon seller fees?

A few weeks ago I was reading a thread about this exact topic.  And Jennifer Coulson said something that has since stood out to me, and I have thought about it constantly.  It is what caused me to investigate a little more.  On this exact item.  She said “Never assume you know another seller’s purchase price.”

Follow along, if you can.

And you can, because I’m not nothing you aren’t, so if I can figure this out, for sure you can too.

We will journey with two sellers as they each buy 12 of this exact item.

Person 1 – Average Buyer

12 @ 7.99 = 95.88

Final Cost Per Unit = $7.99

Person 2 – FBA Master Reader

12 @ 7.99 = 95.88

20% Kohls  Discount (Smartpants) = <19.18>

*Yes 2 You Rewards Cash = < 3.85>

**Ebates 6% = <4.60>

***Raise Gift Card 7% = <5.37>

****Kohl’s Cash = <$10>

Final Cost Per Unit = $4.41

So.  Now what does all this mean?

Before FBA Master, if I was the guy at $18, I would have sat and stared at my screen cursing the low-ball seller for destroying my profit, my margins, and my spirit.

Now though, now I am wiser, and the above quote rings in my head.

Selling at $13.90 brings back $7.71 according to the FBA calculator.

What this translates into is the following :

$7.71 – $4.41 = $3.30

$3.30 / $4.41 = 74% ROI

To sum this up, the low-ball seller has cut the buy box price by almost 25%, lowering it from $18 to $13.90.  In doing so, he has completely frustrated the previous low seller, and has destroyed his profit margins, and profit, and spirit.  While doing all this, the seller at $13.90 has impossibly raised the ROI and the net profit on the item, all by selling for significantly less.  The low ball seller makes 3% more profit (approximately .10 cents) but a whopping 34% higher ROI.  

I know that I geeked out a lot on this one, and I apologize.  But it is important stuff, because the simple process of buying “properly” can be repeated on items of all shapes and sizes, it just takes some creativity and a few extra steps, that, like nearly everything else, become automatic after applying them a few times.  The item chosen was lower priced because I just happened to be watching it for a few days, but I have applied this exact process over and over, especially with Kohl’s.

If someone said they could help show you a process that could earn you up to a 34% higher returns, you would listen.  It is not only the sell price that matters, contrary to popular belief.

Be mindful when you buy, because that is where you make the most money.

* This is rebate program internal to Kohl’s, for every $100 you spend any way (Kohl’s Cash, gift cards, cash, credit, doesn’t matter how) you earn $5 Kohl’s Cash Rewards.  Thus, ever dollar spent is roughly a nickel Kohl’s Cash, so 77 dollars is $3.85 Kohls Cash.  It cost nothing to sign up, and has no expiration date.

** Possibly would be lower with Top Cash Back, or another one, I use Ebates more out of habit than anything else.  Plus I am certain Kohl’s pays out Ebates cash when using gift cards, which is nice!

***Raise Gift Cards are an awesome asset to check out when purchasing online.

****If I was making this actual purchase, I would have added a few more units to hit a hundred dollars after all discounts factored in, because Kohl’s Cash comes in increments of $10 for every $50 spent.  But I didn’t want to confuse the issue by having one person buy 12 while the other ended up with 19 of them.

5 thoughts on “Buy Low, Sell Low : Making Money on the Front End

  • August 6, 2015 at 3:21 pm
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    Great article John. Thank you so much. I made me realize some of the things I was missing. My most recent purchase from Target I remembered to use the gift cards got 5.8%, Ebates was at 2% I believe and got point for cashback from the cc I used. I’m a ‘lernin, I’m a’lernin!

    Reply
  • August 7, 2015 at 6:41 am
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    it’s amazing how much better we get at general shopping from applying some of these lessons. the little tiny ebates percentages add up big time when you scale it.

    Reply
  • March 7, 2016 at 12:50 pm
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    Life lessons applied!

    I recently was amazed when the local pizza place put on a walk in special… $4.99 for a medium pepperoni pizza (regular around $9.99). They also have an ongoing rewards program, 5% off after 5 purchases, ongoing). Then, I saw at costco this same place had discounted gift cards $40 for $50 of giftcards (20% off). Then I saw that the same costco has a promotion, buy $100, get $10 off (10%). … put it all together, and I get $100 of gift cards for $70, buy the $9.99 pizza for 25% off the half price sale price, so actual cost is down to: $3.32 … Plus they offer free extra crust, and free extra sauce … so I get the equivalent food value of a large pizza, for $3.32CND! … that’s about $2.48USD for a large pizza worth of food. … and it tastes great!

    Thanks John for the article. Life changing!

    and yes… I know I could have bought the gift cards from costco on a cashback card (CIBC has one 4% cash back)… so there’s that… but i’m hooked into Air Miles for the moment. Once I use them up, i’ll go cash back card all the way!

    Reply
    • March 9, 2016 at 12:22 am
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      that is fantastic! it is amazing what happens once you begin to see and use the angles that are available everywhere.

      Reply
  • March 25, 2016 at 10:28 pm
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    I get the gist…thank you but I missed some of the calculations…I feel like I missed something!

    Could you share the formula as to how the $13.90 sale made 10 more cents in profit? What’s missing for me is what the profit was when buying it at the original $7.99 price and selling it for $18. Obviously the FBA price would be higher at an $18 price point but I’d like to see the FBA price at the $18 retail price.

    Reply

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