There are abundant opportunities all over the Internet to find great deals on popular products and list them on Amazon for profit. Many consumers are lazy to shop around and want to buy from one trusted place. Arbitrage drop shippers are a huge force in keeping Amazon's prices low.
But if you attempt this business model without knowing what you are doing there's a very strong chance you'll quickly find yourself suspended—permanently. This article is about how to protect your seller account, stay in good standing, and avoid losing your shirt while drop shipping on Amazon.
#1 Respect Amazon's Drop Ship Policy
First of all, it is vital that you understand Amazon's Drop Shipping Policy.
Drop shipping, or allowing a third-party to fulfill orders to customers on your behalf, is generally acceptable. If you intend to fulfill orders using a drop shipper, you must always:
- Be the seller of record of your products;
- Identify yourself as the seller of your products on all packing slips, invoices, external packaging, and other information included or provided in connection with them;
- Remove any packing slips, invoices, external packaging, or other information identifying a third-party drop shipper prior to shipping the order;
- Be responsible for accepting and processing customer returns of your products; and
- Comply with all other terms of your seller agreement and applicable Amazon policies.
The key to not violating this policy is to select suppliers who are willing to work with you and put your name on the packing slip and remove their own promotion. If you can get a written agreement with each of your suppliers, that is the easiest way to show you are in compliance if any issue arises.
It may be difficult to get a large retailer to listen to you, and you may have better luck with smaller niche vendors. But playing by the rules is is well worth it, and Amazon's compliance department will help prune your competition.
#2 Build Your Reputation First
Second, the better your reputation the less hassle you'll get from Amazon's compliance department. I don't recommend drop shipping at all when your account is brand new. If you are selling brand name items, at some point Amazon is going to ask you for receipts to prove you are sourcing your products from a legitimate supplier, and they don't find retail receipts acceptable.
In fact, most arbitrage seller suspensions don't come directly from violations of the above policy. As long as their order is correct and arrives on time very few consumers will care if another retailer appears on the packing slip so complaints are rare. However Amazon has zero tolerance for counterfeit products and they have a vested interest in making sure that sellers are sourcing brand products from reputable suppliers. Amazon frequently asks newer sellers for wholesale receipts, but once you have proven yourself to be an honest seller these checks become rare.
There's nothing inherently unethical about sourcing products from reputable retailers rather than wholesalers, but Amazon's enforcers tend to think in binary terms and err on the side of suspension in order to protect Amazon's interests. They would rather suspend an innocent seller than risk allowing Amazon to be sued or criminally prosecuted for intellectual property violations. And I don't blame them.
So if you are a new seller, the best way to get started is with a low-risk vanilla business model. Find some high ranking brand name listings (likely to sell quickly) and purchase those products from a reputable wholesaler. You can use FBA or self-fulfill. You probably won't make much profit initially, but the purpose is to build your reputation and earn good reviews as quickly as possible. You will also need wholesale receipts to get access to gated categories like toys and jewelry. If Amazon asks for receipts it is great to have exactly what they are looking for and you will quickly become trusted.
Once you have successfully fulfilled hundreds of orders including brand-name merchandise and you have gone at least several months without having to show receipts, then it is probably safe to begin embarking on more profitable arbitrage opportunities.
#3 Use Reliable Monitoring Software
Third, once you start doing drop ship arbitrage you better make sure you fulfill your orders correctly and on time. Amazon has very low tolerance for cancelled or incorrect orders. Every drop ship seller's worst nightmare is to get an order that your supplier can't fulfill. Just a couple of these can render your seller account toast forever and your income disappears in a puff of smoke.
The other problem you can run into is if you source a product during a sale and the supplier then raises the price without notice. You are then forced to choose between fulfilling the product at a significant loss, or risking suspension by cancelling the order. It is almost always is less painful to take a financial loss than risk permanently losing your selling privileges.
You can significantly reduce the risk of running into these problems by employing reliable software to monitor your suppliers and keep both your inventory levels and price in sync with your suppliers. I also highly recommend using an integrated re-pricer which will adjust your prices in real time in response to the competition. Re-pricing software helps you holding the buy box more often which can significantly increase your sales.
There are two aspects to look for when choosing monitoring software. First is obviously reliability. If the results are inaccurate then your business is at risk. The worst case scenarios are when a product goes out of stock and your monitoring software doesn't report it, or when a price is falsely reported too low.
You want to make sure the software is built on rock-solid redundant infrastructure, and that it has accountability to demonstrate that the products are being checked on time. The software should time stamp when items are checked and show you real-time statistics.
Monitoring software generally works by scraping supplier websites and parsing the HTML code to detect whether a product is in stock or not and what the correct price is. Online stores can change their HTML code without notice, which can cause product monitoring to break for that supplier. Occasional breaks of this nature are inevitable, so it is important that the engineers who run your monitoring software are committed and able to fix things quickly.
The second most important aspect of choosing monitoring software is productivity. Your time is valuable, and so is the time of your employees. If you have to wait for the screen to load every time you click a button you are losing money. The ideal monitoring software should allow you to manage your listings without unnecessary waiting or copy and paste.
Finally, the ideal arbitrage automation software should provide the analytics you need to easily determine which of your listings are profitable and which are dead weight. You should be able to sort your listings by both profitability and Amazon sales rank. You will save tremendous time and money by getting rid of dead weight listings and focusing on those which are both profitable and high ranking.
If you operate within Amazon's rules, build a solid reputation with reputable wholesalers up front, and use reliable monitoring software then drop ship arbitrage can be a very lucrative business. But if you get sloppy or try to take shortcuts then you can quickly find your selling privileges revoked and dream shattered.
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