The purpose of this blog post is to provide quick answers to the most common questions that I receive. If you aren’t able to find answers to your questions in this list, feel free to leave me a message in the comments section below, and I’ll respond to it directly.
Physical Product Suppliers
Question 1: How do I establish relationships with eBay suppliers?
Because Arbitrage is a short-term testing strategy, you don’t need to form a relationship with the eBay seller. Start by marking up the retail price of the product that you intended to sell. Then, sell these products on your website without having them in your possession. Whenever you made a sale, manually recreated the order on eBay. Enter your customer’s shipping address during checkout and included the following order note:
“This is a gift. Do NOT include an invoice or promotional material.”
Once you’ve sold 20+ units and are satisfied with your product selection, I recommend moving away from eBay immediately and sourcing a professional drop shipper who will be able to fulfil your orders on a formal basis.
Question 2: How do I identify a reliable eBay supplier?
When users buy products on eBay, the platform automatically asks them to review the company from whom they bought. Collectively, these reviews make up the company’s “seller rating”.
A seller’s rating is critical to their long-term success on eBay. As a result, companies will often go to great lengths to protect it. In my experience, a good eBay seller will bend over backwards to ensure that you have a good experience.
With that in mind, I only chose vendors with a 98% + seller rating. By selecting only the best suppliers, Good service is almost guaranteed. I have shipped tens of thousands of products this way and have never experienced a problem.
Also, I am careful to select only suppliers who are based in the market that I am trading in. If I am selling to the US market, for example, I only use suppliers who are based in the US. Choosing international suppliers leads to slow delivery and customer complaints.
Question 3: What prevents my customers from going directly to my supplier?
In a word, “nothing”. As a matter of fact, I estimate that 5% of my would-be customers bypass us and go directly to our eBay supplier. Fortunately, the 95% of customers that we retain has proven to be more than enough to maintain $1000 per day business.
Customers will buy from you for two reasons:
Firstly, you are in front of them. In general, eBay sellers rely on the platform’s existing traffic to drive their sales; they seldom market directly to the end customer using other means. Ultimately, you are fishing in a totally different pool.
Second, your customers know, like, and trust you. Your business should add value to your niche market in the form of blog posts, free downloads, social media, and other content. Once you’ve established a level of trust with your market, they will happily choose you over an eBay seller nine times out of ten.
Question 4: Must all of my products originate with the same supplier?
No. eCommerce software, such as Shopify.com, is capable of sending order alerts to suppliers on a product by product basis. In other words, a customer may purchase ten products from your store, each of which is provided by a different supplier, and your eCommerce system will alert each supplier with a unique set of fulfilment instructions.
If you would like to set up a more advanced fulfilment process, you may do so using third-party fulfilment systems such as Ordoro.com.
Question 5: Is eBay the only viable source of arbitrage suppliers?
Any online store that trades within your target market is a potential supplier. In my experience, however, it’s best to partner with companies who list their products on shared marketplaces such as eBay, Amazon, Etsy, etc.
These platforms offer two significant advantages:
First, the competitive nature of a shared online marketplace forces vendors to sell their products at significantly reduced rates. As a result, you’re able to add a 50 to 200 percent markup while maintaining an attractive offer.
Second, any high-selling product that you find in a shared marketplace is sure to be available from multiple vendors. Having a group of potential suppliers gives you a level of insurance against stock shortages, poor service delivery, etc.
It’s important to keep in mind that some such websites forbid arbitrage in their terms and conditions. Be sure to read through the Ts and Cs before you start.
Question 6: How do I process returns?
While handling returns is a relatively straightforward process, it does require a fair amount of manual intervention. As a result, I recommend outsourcing the task to a freelance customer support agent on Upwork.com.
When one of your customers asks to return a broken or defective product, my support manager follows the following three-step process:
Step One: Contact the relevant supplier and relay the return request.
Step Two: Once you get the go-ahead from your supplier, approach your customer and ask him to post the product to your “warehouse”.
Step Three: Once the product has been returned, your supplier will refund you and you will, in turn, refund your customer.
On low-cost products, your supplier may well offer to ship a new product or issue a refund before the customer has even posted the unit.
Question 7: How long can I arbitrage?
Strictly speaking, arbitraging products through eBay or a similar product directory is a means to an end. While it can sustain a long-term business, it’s big strength is in helping you find products that sell. Once you know that your product is a winner, the next step is to establish a formal relationship with a professional drop shipping company.
Drop shipping is a supply chain management technique in which you, the retailer, don’t keep goods in stock. Instead, you pass your customer’s orders and shipping details to either the product’s manufacturer or a wholesaler. They, in turn, deliver the goods from their warehouse directly to your customer shipping address.
In other words, “drop shipping” is a formalised version of arbitrage. While eBay sellers are often willing to make a special arrangement for you, professional drop shippers are actively looking for partners to sell their products.
If you’re looking for a drop shipping partner, the below directories will give you a good starting point:
Question 8: What happens when the eBay seller realises that I’m reselling his products?
First of all, the fact that you’re reselling his product isn’t a secret. The reason I tell the supplier that “this is a gift” is to ensure that my subsequent instructions are understood.
In my experience, when your eBay seller realises that you are marketing and selling his products, he will do two things:
- Dance with joy.
- Add you to his VIP-customer list.
Question 9: What if the eBay seller will only ship to a confirmed PayPal address?
You can have up to nine “gift” addresses listed within your PayPal account. If your supplier will only ship to a listed PayPal address, you’ll need to add the address to your PayPal account, and then select it from the list during the eBay checkout process. Once the order has been processed, you may delete the address from PayPal.
Again, it is important to keep in mind that eBay will only be used to fulfil a small number of orders during the testing phase of your business. As such, I wouldn’t be overly concerned by the manual intervention that is required during this brief period.
Question 10: I live in a third world country. Will this model work for me?
One of the great things about the Internet is that it removes geographic borders. You no longer need to sell to a particular group of people or earn a specific currency because of your physical location. Instead, you get to choose your markets and currencies.
As a Montenegro citizen, this was one of the most revolutionary aspects of the business model. I started my first arbitrage business from my living room in Podgorica, but sold my products, in Dollars, to the far bigger and more affluent US market.
Not only was this far more profitable than selling locally, but it was also simpler to implement due to the culture and infrastructure of my target market. Since then, I have expanded by businesses and now sell to customers in the United States, Canada, the United Kingdon, Australia, New Zealand, and many more.
Question 11: Did you set up an offshore company and bank accounts?
Setting up an offshore company is seldom necessary. Provided you’re working with a payment processor that collects funds in your target currency, the jurisdiction in which you incorporate your business is of little consequence.
For example, though I sold my products to customers in the United States, my first company was incorporated in Montenegro. Every month, I collected thousands of dollars using PayPal and then withdrew them directly to my bank account.
If you live in a third world country and would like to take advantage of a more stable or tax-friendly economy, you can set up an offshore company through OffshoreFormations.com.
It is, of course, critical that you consult with a legal advisor to ensure that you adhere to all applicable legal requirements.
Question 12: How do I set up a local address and phone number?
In my experience, having a presence in your target country doesn’t increase sales by much (if anything). If you feel that this is a necessary step for your business, I recommend holding off until you’ve built up a steady flow of sales and income.
The simplest way to set up a local presence is to arrange a virtual office with Regus.com. For a monthly fee, Regus will provide you with a local a phone number, answering service, physical address, and mail forwarding service.
Question 13: If I sell internationally, where should I pay tax?
Unfortunately, I am not a tax consultant and can’t legally give any tax related advice. If you want an accurate answer to this question, you need to talk to a registered professional.
In my experience, the rule of thumb is to pay tax in the country in which your company is registered. That said, because every country and company type comes with a unique set or laws, even this rule of thumb is often broken.
Question 14: Do I optimise my websites for search engines?
“Search engine optimization (SEO) is the process of affecting the visibility of a website or a web page in a search engine’s unpaid results. This is often referred to as “natural,” organic,” or “earned” results.” ~ Wikipedia
For many, online marketing begins and ends with Search Engine Optimisation. While SEO can be a powerful long-term traffic source, it comes with three major problems:
1. It’s time-consuming
It can take a long time for your offer to rank on the first page of a Google, Yahoo!, Bing, or similar search. In the context of an arbitrage business, this poses a major problem.
When setting up a new business, you need the ability to test and adjust your offers ten times in ten days if necessary. Without an immediate traffic source, this is impossible.
2. It’s expensive
Because organic search engine traffic doesn’t come with a cost per click, many people mistakenly count SEO among their free traffic source. Not counting the cost of optimising your website in the first place, when SEO is used as the sole source of traffic, it carries one major expense; lost business.
My first AOB generated just under $12 000 in its first six weeks. Had I spent those first six weeks optimising my website, my effort would have cost me $12 000.
3. It’s out of control
I spoke with countless companies who had invested small fortunes into climbing the SEO ladder. In many cases, these companies lost their first-page rankings in one of Googles search algorithm changes and had to begin the climb once again.
While SEO does play a role in my businesses, I am not willing to stake their success against a traffic source that I don’t directly control. As such, my primary traffic sources include paid ads, email marketing, and social media referrals.
Question 15: Is it possible to sell services using this model?
Absolutely. With enough creativity, it is possible to sell just about anything with this model. If your goal is income automation, however, I recommend selling products.
In general, selling services is more labour intensive than selling products. If you have a service to sell, I recommend thinking about how to convert that service into a product.
For example, if you plan to sell bookkeeping services, you could, instead, create a “Bookkeeping 101” course that teaches small business owners to manage their finances more effectively.
Question 16: How do I calculate shipping fees on my eCommerce store?
When it comes to charging your customers for shipping, you have two primary options: You could calculate shipping costs dynamically based on the package’s size, weight, and destination, or you could work with averages.
I’ve found that, while the former is offers greater precision, the latter is both simpler and more profitable.
I start requesting an average-shipping-cost estimate from my supplier. Once I have this, I pass the cost on to my client by adding the shipping fee to the product’s price, adding a fixed-rate shipping cost to the product on checkout, or splitting it with a combination of both.
For example, if I’m selling a $20 product that costs, on average, $5 to ship, I would proceed with one of the following options:
1. Sell the product for $25
2. Sell the product for $20 with a $5 shipping fee.
3. Sell the product for $22.50 with a $2.50 shipping fee.
Question 17: Where do I get product images?
If you are selling physical products, I recommend using images provided by your supplier. If you are still in the arbitrage phase of your business, you can take these pictures from your supplier’s product listing.
If you are selling information products, I recommend buying stock photography from a website such as iStockPhoto.com, GettyImages.com, Stock.Adobe.com, etc. and then applying them to one of the free templates available on PSDCovers.com