CASE STUDY: Making Money On a Product 3000+ People Saw… Twice

Here’s a secret: If you want to be successful at arbitrage, you have to be good at spotting things that other people miss.  Every single person reading this can go to WalMart.com and click on their clearance toys section and find items.  The problem, though, is that when everyone can do this, the window of arbitrage closes very quickly.  This is where those dreaded races-to-the-bottom happen.  It’s not (always) because other sellers are just stupid and don’t care about money.  Sometimes it is just the market doing what markets do: correcting itself.

If you hope to avoid this, you need to train yourself to start seeing things that other people don’t see.  This might mean sourcing from stores that not everyone has access to.  This might mean selling in categories that are restricted.  This might mean bundling.  It might mean private label.  This might mean meeting a small wholesaler at the golf course and building a relationship with him that the rest of us don’t have access to.

Many months ago, Chris and I both spotted a price drop using Keepa and both of us passed it along to the Godfather group, which had just over 3000 people at the time.  The Keepa chart looked like this at the time:

Initially, I wasn’t particularly interested or disinterested in the item.  Many months before it had been selling for upward of $20, but there had been months and months of 1.99 and even when AZ went to a higher price point it was more like $9-10 than $20 lately.  So I posted it and didn’t think too much about it.

A few days went by and I went through the old posts (as I always did) and noticed that neither Chris’ post, nor mine, had any comments/likes.  I also knew from my own records that none had been bought via my link.  When this happens, I try to ask myself if I made a mistake when I posted it as a BOLO or maybe people just missed it.

I began to look a little closer.

Amazon often in stock – People are often advised not to compete with Amazon.

Sales price topping out at $10 — People often advised not to sell items below $12

Category: Home Improvement — Not a particularly popular category

At a $9 price point, only $2.76 profit — People often think it isn’t worth their time to sell low profit items.

So, I started to think that this was an item that maybe most sellers would overlook, but there was still some potential.  It was selling 5-15 units a day.  The rank was similar at the 1.99 and 9.99 price point and had sold for $20 before, so it told me that the the price elasticity was low.  This is just nerd-speak for saying that the effect on demand of price was relatively low.  Something with high price elasticity might sell a LOT at a low price point, but become a barren wasteland at higher price points.  When I want to sell at above-retail prices, I want price inelastic items.

There were only a couple sellers on the listing.

I couldn’t tell if Amazon only had 54 left or if they were limiting me to 54, but I figured for $108, it was a risk I was willing to take.

I knew that this item didn’t have a ton of absolute profit, even if it figured to have over 100% return on investment.  This meant that I needed to lower the time and financial investment as much as possible.  I almost never commingle, but this product was an ideal candidate.  There was no brand to worry about counterfeit items.  It was inexpensive.  It was unlikely to suffer from many claims of being defective (there weren’t moving parts, electronics, etc).  It would have required poly-bagging the item if I wanted to label it.

So, this became one of those rare exceptions.  I turned on commingled inventory.  I literally did not touch the product.  I peeled Amazon’s sticker off of the box, put my sticker on the box, and sent it back to Amazon exactly as they sent it to me.  The time to turn on commingled, list the item, create the shipment, and put the label on the box was probably a combined 5 minutes.

Shipping the item cost me 5.41 for 54 units, which we can approximate and call 10 cents per item, for a total cost per unit of 1.99.

It took a bit over a week to finally arrive at the final warehouse, but this worked in my favor.  In this time, Amazon sold out.  By the time my items went live, Amazon was out and I had the buy box at 9.99.  I sold all 54 in under a week.  Some math:

So, there are a few ways to look at this.  One is to say I only made $3.73/unit.  Another is to say I made 187% ROI in a couple weeks.  A final option is to say that I made $200 for 5 minutes worth of work.  You would be amazed at how often I’m told that items that only make $2, $3, $4, whatever, aren’t worth it.  Obviously I disagree.  I’ve now bought out Amazon’s stock on this 4 different times.  The second time wasn’t great.  Amazon came back in stock and I didn’t make a sale for at least 6 weeks (because I wasn’t about to sell it for 1.99 a unit!).  However, when they ran out, I was actually able to sell for even higher than 9.99.  I’ve now sold this product for upward of $13 on some occasions.

After all is said and done, so far I’ve bought 216 units, spent less than half an hour, and have profited about $950.

This was an opportunity that was listed not once, but two separate times in a group of 3000 resellers.  How many ways could I have talked myself out of this item?  Half a dozen or so.  “Oh I don’t want to buy items that 3000 other people see.” “Oh this was on Keepa’s price drops … everyone sees those.” “I don’t want to buy an item that sells for $10 or less.”  “I don’t want to compete against Amazon.”  “Poly-bagging would take forever and commingle is evil.”  “Home Improvement … meh I don’t know that category, forget it.”  On and on the excuses go.

But, I had a hunch that this would be the type of item that most people would miss and it had some upside.  I decided to ‘risk’ my $107.46 and try it out.  Hopefully Amazon gets this product back and I can continue to buy them out.  Sure, this product isn’t going to make me rich.  No single product will ever make me rich because I don’t manufacture my own products and I compete with other sellers who have access to the same goods. However, slowly but surely building up a stable of items like this has allowed me to be successful with Amazon.  Any time someone wants to pay me nearly $1000 for thirty minutes of my time, I want to take that opportunity.

So, it is my hope that this can be an example to you of a few different things.  How I look for items that aren’t as susceptible to races to the bottom.  How I weigh risk and reward.  When and Why I might be willing to look at items that have low absolute profit.  Ultimately, of course, I hope it shows you how anyone else could have done this.  Tons of people see Keepa price drops.  Thousands of people saw both my post and Chris’ post.  There was nothing special about me on this product.  Like I said, I didn’t even buy it when I posted it.  The only difference between me and the 2999 other people was that I bought it and they didn’t.  Right now we are in the middle of the Q4 craze, but first quarter is coming.  By February you aren’t going to be able to sell toys ranked 200,000 at 200% of MSRP an laugh all of the way to the bank (okay, you probably still can, but it won’t be nearly as easy).  If you want to be successful long term, I encourage you to start looking for items that you can sell over and over again without even thinking and add them to your product mix.

As Always, Best Wishes

Mike