Complete Guide: How to Evaluate an Online Arbitrage Product to Sell on Amazon (Part 1)

How to Completely Evaluate the Sales Rank, Velocity, Price History, Competition, ROI, and Profit Potential of an Online Arbitrage Lead (to Sell on Amazon)

April 23, 2020

In our last post, we covered a few simple methods for sourcing online arbitrage leads for resale on Amazon. This post is a complete expert guide for analyzing an online arbitrage lead for resale potential on Amazon. We have included a table of contents below to help you navigate the tutorial.

In a way, reselling on Amazon is similar to studying a juvenile stock market. If you learn how to understand the history of a product, you are likely to be able to predict the future of it.

Even if you aren't planning on running an online arbitrage or retail arbitrage business model, the information in this post will help make you an expert in analyzing product sales history and velocity on the Amazon marketplace. Consequently, you will understand any ecommerce business better, setting you up for more success in the future.

When you break down the decision of making a purchase for resale, there are several different components that have an effect on whether or not the product is a good lead.

In this MASSIVE article, we cover all of these components, what tools we use to analyze them, and how we make purchasing decisions based on the product information that the metrics reveal. We will show you the exact information that we use to train our sourcing team and buyers to make smart decisions on leads within our own online arbitrage business.

Once you understand the concepts of this article, you can teach them to your assistants and automate your sourcing and buying as well. It’s the toughest part of the business to automate, but if you put the time and effort in, it pays off big time. You can have pizza parties and celebrate all day.

Remember, online arbitrage is the method of finding products in one marketplace online and reselling them for profit on another marketplace online. In this case, there are thousands of online retailers offering discounted products, product sales, brand sales, and coupons which allow a margin to open up for resale.

If you know how to source leads, evaluate them, and buy them for the lowest possible unit cost, then you are in a position to build an incredible business on top of the principles.

Are you ready? Let's dive in.

To assist navigating this article, here is a table of contents for your convenience:

Table of Contents (Part 1)

Identifying the Product ASIN (Amazon Standard Identification Number)

There are several ways to identify a product ASIN, such as checking the product detail section of the Amazon listing or looking in the browser bar. If it’s an item with multiple variations (such as different colors, sizes, etc) then each listing will have a Parent ASIN, and each variation on the listing will have a Child ASIN.

What you need to know is that each product has a unique ASIN, and that ASIN is the universal reference identifier between sellers and Amazon.

The Importance of ROI and Velocity in Online Arbitrage and Ecommerce

Obviously, the main goal of buying a product is to resell it for a profit. But, because Amazon is a free market with direct competition between sellers and constant supply and demand changes, the profit that is often estimated can change rapidly between the time you purchase leads and the time they actually arrive on Amazon for resale

This can be okay if the price stays stable or even increases a little, but often the price drops due to competition which decreases the margin. Because it’s a free market with rapid changes, it’s not only important to focus on profit and return-on-investment (ROI) potential, but also the velocity at which an item is selling.

Profit will always fall in line if the ROI converts, and sales will always take place if velocity is high and you are competitive with the other sellers in the marketplace.

Fortunately, there are some remarkable tools available to help out when evaluating products. Below is a list of the tools our team uses to analyze every online arbitrage lead, followed by a breakdown of the different types of metrics we track. If you have already implemented sourcing methods to find a few potential leads to analyze, this article will help you analyze those leads for resale potential.

Installing Online Arbitrage Plugins and Tools to Evaluate Leads

In the following sections, we will be diving into certain tools, extensions, and plugins for identifying metrics. It may help to go ahead and install some of these yourself so you can play around with them. Luckily, KEEPA and REVSELLER have gotten so advanced that we don’t have to install too many different plugins that only have one feature. Some of the plugins to install are:

At the very minimum, install KEEPA so you can get a good feel for all the metrics we discuss below when evaluating an online arbitrage lead.

Metrics to Consider when Analyzing an Online Arbitrage Lead for Resale Potential

Once an online arbitrage product is identified to have resale potential, these questions need to be answered:

  • Is the product restricted?

  • Is the brand restricted?

  • Is the product considered hazmat?

  • What is the estimated velocity of sales for this item each month?

  • What is the product category?

  • What is the current sales rank?

  • What is the average sales rank?

  • What do the charts reflect for sales rank?

  • How many other competitors are there?

  • Is Amazon a competitor?

  • How are the reviews and ratings performing?

  • Is the price history stable?

  • Have there been any price tanks or spikes in the past?

  • If a product has variations, which are performing the best?

  • What is the estimated ROI? (Return on investment)

  • What is the estimated Profit?

  • What % of the profit is absorbed by prep and shipping fees?

  • Is the item optimal size and weight for FBA shipping?

  • The smaller, lighter, and less fragile, the better.

  • How much of each item should I buy?

Before you can hire and train product sourcers or buyers to analyze and purchase your products for you to help scale your business, it helps to be an expert at analyzing leads yourself. We recommend spending at least three months in this portion of the business to track leads that you purchase all the way through the sale. This will allow you to understand the flow of the leads.

There are so many possible outcomes to a lead’s life that this information and experience is vital for your business to succeed. Best-case scenario is the lead gets to Amazon and sells quickly for a profit.

But, as with any business, the best-case scenario isn’t always what happens. We can’t stress the importance of learning these metrics to help minimize error and risk.

To start, pretend like you have found a lead that looks like it has potential. Or better yet, do some sourcing and find a lead that you think has potential. The above questions outline the order of operations that you will need to analyze your lead with.

Below is a breakdown of each metric and how to measure it:

Is the Product or Brand You Are Evaluating Restricted or Hazmat?

Product and brand restrictions are one of the biggest headaches for Amazon resellers, as they create giant gates which block many sellers from being able to sell certain products based on categories, product safety classifications, and brands.

There are solutions for pre-determining if you can sell a product or not, which you absolutely want to check before you buy any item. Don’t get caught with your pants down.

Here are a few tips for checking if a certain product is restricted for your seller account or not:

Checking Restrictions on the Seller Central Web Platform - Free

You can usually check to see if a product is restricted or not by logging into your Amazon seller central account and entering the product ASIN. On the seller central website, navigate to Inventory > Manage Inventory > Add a Product and then type or paste the ASIN. You will see a blue link that says “Listing Limitations May Apply” if there are possible restrictions. If you can sell the product, it will show you which conditions you can sell it in (new, used, refurbished, etc) and there will be a big yellow button that says “Sell Yours.”

Amazon is constantly updating their system to be as accurate as possible, but it can still be tough to figure out if a product or brand is restricted or not. Sometimes it shows HAZMAT safety restrictions, and sometimes it doesn’t, so always have your team check restrictions with multiple methods if possible.

Checking Restrictions on the Amazon Seller Central App - Free

The Amazon Seller Central App is extremely accurate for checking brand restrictions. But, it can be kind of a pain because you have to type in the 10 digit ASIN into your phone every time you want to check something. We do it because it’s accurate, but it’s definitely not the best option for systems flow and time management purposes.

If you open your seller central app and click “add a product” you can type your ASIN in there. It will then bring up the product information screen, and about halfway down the page is a “Seller Eligibility” section. It will show a green checkmark if you can sell the product, and a big red caution triangle if you can’t.

Also, if you notice a red circle with a slash in the upper right corner of the listing, it indicates that the product is under safety review for hazmat, and it cannot be sold through FBA.

Checking Restrictions with AZInsight and RevSeller Tools

If you are the owner of some of the fancy multi-purpose tools, such as AZInsight and RevSeller, these tools also check restrictions and hazmat status in a much faster way.

The top plugin is RevSeller, showing the following:

The bottom is AZInsight, which also checks hazmat status on top of restrictions:

Although the methods above work about 99.9% of the time, there are situations where the information presented to us isn’t accurate. In an extreme case in 2017, we ended up with thousands of dollars in restricted items that we purchased and couldn’t sell.

Sometimes brands become restricted randomly, and other times the information that Amazon reflects on their site isn’t accurate. Either way, it’s not fun to get stuck in that trap, so be extremely careful when analyzing products for restrictions. Intellectual property rights are incredibly important and it’s your job as a seller to make sure you are legally following all Amazon policies and selling products you are authorized to sell.

Sales Velocity: What is the Estimated Number of Sales for a Product in a Specific Period of Time (day/month)?

Once a lead has passed the restriction verification test, the next step is to start analyzing the sales potential for the item. Obviously, you don’t want to buy products that aren’t going to sell. That defeats the purpose of online arbitrage in the first place.  Any products that you buy for resale on Amazon should be selling relatively well, otherwise, you will be stuck with inventory sitting on a shelf.

The faster you can move product, the better. If you have massive amounts of items just sitting on Amazon shelves for months, Amazon will start charging you long term storage fees. In this business, cash-flow is your best friend. The faster the products move, the faster cash is transferred to your bank account.

This is why sales velocity is so important. You can’t make money with a product that isn’t selling. And, since Amazon is a free market and supply and demand change constantly, it’s smart to use all the tools available to make the best educated decision on how many units of each lead to buy.

If you analyze the trend of sales in the past up until the current date, you can make a fairly reasonable guess on how this product will sell in the near future. It’s much harder to predict the extended future. As listed at the beginning of this section, there are a few different components that play into estimating sales velocity, including:

  • What is the product category?

  • What is the current rank?

  • What is the average rank?

  • What do the charts reflect for sales rank?

  • What is the sales rank for a certain variation?

Here is the exact process that our teams use to analyze sales velocity potential based off of past and current metrics for our online arbitrage leads:

What is the Amazon Product Category for an Online Arbitrage Lead?

Amazon classifies every product under a specific category. This category is broken down into a main category (parent) and sometimes several subcategories (child). These categories are used to make it easy for buyers to navigate to particular types of products they are looking for. These categories are also used to rank specific products among all products in the same category based on popularity and sales velocity.

Essentially, each product gets a “category” and a “rank.” Because Amazon is a marketplace that is constantly improving, they sometimes restructure and retitle categories on their site. Here is a list of the current Amazon main categories that a product can be classified under. The parent categories that our teams sell under when doing online arbitrage at the time of this writing are:

  • Baby Products

  • Beauty

  • Clothing and Accessories

  • Grocery and Gourmet Food

  • Health and Personal Care

  • Home and Garden

  • Industrial and Scientific

  • Jewelry

  • Luggage and Travel Accessories

  • Office Products

  • Outdoors

  • Shoes, Handbag, and Sunglasses

  • Sports

  • Tools and Home Improvement

  • Toys and Games

  • Watches

  • Automotive

  • Other various categories

The categories highlighted in bold are the categories in which the bulk of our products are classified. This is generally due to the availability of these types of products from sources that we are buying from. Nonetheless, there is an opportunity in ALL Amazon categories. The more access you can get to categories, the wider variety of products you can sell and the less competition to sell against.

How to Find the Amazon Product Category:

There are many tools that you can use to identify a product category, but you can also find it directly in the Amazon details section of the listing. Scroll down on any Amazon listing page to find the product details section, then identify the parent category on the lead.

Again, to estimate sales velocity, which we will discuss below, you must identify the PARENT category. In this example, the parent category is Grocery & Gourmet Food. The subcategories are more specific. A good way to imagine it is that the parent category is California, and the subcategories are Los Angeles, San Francisco, etc. The pool gets smaller. All you need to remember is that you need the parent category to estimate sales velocity and not the subcategories.

Very rarely you may come across a listing that only has subcategories and no parent category. This is usually a glitch in the system, and the best option is to stay clear of reselling any listing that only has a subcategory. The issue can be fixed by editing the listing, but generally, it’s easier to avoid the situation in whole.

Below, we will get into using other tools to identify product sales potential, and many of those tools also display the rank and category of a product. Some of these tools are google chrome extensions that embed directly into your browser, displaying the information on every listing that you open. Here are some examples of RevSeller and Scanalyze embedments:

On AZInsight, it’s in the top left corner:

When using KEEPA, you can view the information by clicking the ‘data’ tab:

For the purpose of this section, familiarize yourself with all of the categories available and how to find a product’s category. Each category has a different number of products that fall under its umbrella. Because this section is about metrics, we are going to use the product category as a reference to understand the potential velocity of sales for a product. To do this, we have to identify the product “rank” for a particular category.

Product Sales Rank: What is the Product Sales Rank of an Amazon Lead?

There are multiple ways to approach online arbitrage leads. Some people find products that aren’t yet selling on Amazon, and they create listings for those products and then try to drive traffic to them. This method can cost time and money to get traffic flowing to a particular product, to build reviews, and to gain rank.

Our approach is to identify listings on Amazon that are already selling really well and then source the product elsewhere for a cheaper price. So, for the purpose of this article, we will be explaining how to analyze a listing that is already live and selling on Amazon.

The sales rank of a product is controlled by Amazon’s algorithms. Therefore, to make a good estimate of a sales rank and what it means, you have to rely upon the metrics and tools you have, and then make an educated interpretation and estimate on your own. A product’s sales rank is often considered the most important metric as a whole when analyzing the sales velocity and potential of a product, but it’s also an area that is widely misunderstood.

To create a successful team you can trust to make correct sourcing and purchasing decisions in your online arbitrage business, you have to make sure they understand the power of correctly analyzing sales ranks. Tools like Keepa and CamelCamelCamel allow you to view not only the current sales rank of a product but also the history of sales rank from the beginning of time.

While these two nuggets of info can help you draw a fairly accurate conclusion on how well a product has sold and is still selling, it is very important to take into consideration the array of other metrics that we are discussing in this section as well, such as current and historical ratings & reviews, competition, price history, and more. You can’t rely on current sales rank alone to identify how well a product is selling, and this is often a huge mistake for new or uninformed sellers.

To interpret and predict sales potential accurately, you must answer these questions:

  • What is the category? (As from the section above)

  • What is the CURRENT sales rank in the category?

  • What is the AVERAGE sales rank history for the product?

  • What is the sales rank trend for the product? (Is it selling the most in particular times of the year, or is it fairly steady all year round?)

  • How do the Keepa or CamelCamelCamel charts look?

Current Sales Rank vs. Average Recent Sales Rank

Current sales rank is a measure of how long it has been since an item last sold. When an item sells on Amazon, it’s not unlikely that the sales rank will drop dramatically to a lower number (closer to 1). Then, as time starts to pass where it isn’t selling, the rank slowly starts to slide back up.

The lower the sales rank number, the faster the item is selling. A sales rank of 1 is the fastest velocity of sales possible, while a sales rank in the millions is often a very slow selling product. However, remember that the current sales rank really doesn’t mean much in relation to the average sales rank (usually over the past 30 days).

If the current sales rank is close to the range of the average sales rank over the past 30 days (ex: Current: 24,000, and Average: 40,000), it’s a pretty safe bet that the current sales rank is a good indicator of average sales. However, if the average sales rank is around 100,000 and the current sales rank is 30,000, it’s possible that the current sales rank is misinforming or temporary.

The trend might indicate that the sales rank for the product will most likely slide back to around 100,000 to satisfy the average. Alternatively, the product could just be becoming more popular and thus moving toward a better long term sales rank. Use the average sales rank as your anchor and factor in the current sales rank by identifying recent trends of the rank. Then, use a combination of the two to make an educated guess on the best rank to use for estimating sales potential. A few key notes to keep in mind:

  • Current sales rank is dependent on the amount of time since an item last sold.

  • Don’t count out items with poor current sales ranks if the average is better.

  • If an item isn’t selling much at all, it may not even carry a sales rank.

Identifying Current and Average Sales Rank Using the Detailed Amazon Listing:

Scroll down to the product details section that you looked at to check the category. The current rank displays in front of the parent category. This product is currently ranked #2600 in Grocery & Gourmet Food. The product details page doesn’t display the average sales rank.

Identifying Current and Average Sales Rank Using KEEPA

There are a few different ways to analyze current and average rank with KEEPA. The most direct way is to click the “data” tab and view the information under current and averages:

You can also make an educated guess by viewing the ranking graph trends. You’ll notice below that the GREEN graph is the Sales Rank (as the arrow points to). If you draw a line across the green graph trend, you can get a good estimate of the average. The blue line I’ve drawn below shows an average around 2600-3200, which correlates with the numbers from the data tab above.

You may notice all the other information on this graph. We will get the importance of the other information in the following sections. You can toggle the information on and off by clicking the colored dots to the right of the graph. If you want to only view sales rank, you can.

Identifying Current and Average Sales Rank Using RevSeller

RevSeller identifies the current rank in bold and the 90-day average rank underneath.

Identifying Current and Average Sales Rank Using JungleScout Extension

If you decide to use JungleScout, you can click the extension button on any listing and it will spit out all the information necessary to estimate sales and velocity. We will revisit this extension to discuss sales velocity later in this article.

Estimating Sales Velocity (The average # of sales per month)

Once you have identified the sales ranks and the category, you can then use the information to estimate the average # of sales a product makes per month. If you can identify products that are selling a high average number per month, then chances are you will be able to sell them quickly once they arrive at Amazon so long as your pricing is competitive.

Free Tools to Estimate Average Sales Velocity for Amazon Products:

FbaToolkit.com - FbaToolkit is an older website that allows you to plug in a sales rank for a particular category and it will estimate the number of sales per day and month. You may notice that this tool often predicts a lower amount of sales than other paid tools. It only offers some categories and looks to be fairly outdated, but still works. For a rank of 26,000 in Grocery and Gourmet Food, it is predicting about 3-5 sales per day. Again, it's super old and we aren't sure it's even updated metrically, but if you are rolling the dice for free it may help.

Unicorn Smasher - Unicorn Smasher is a free alternative to JungleScout. We don’t currently have it installed, so we cannot show you the sales estimate based on the example we’ve been looking at, but here is a screenshot of an estimate for a toy:

Premium Tools for Estimating Sales Velocity for Amazon Products:

JungleScout - Our teams use Jungle Scout because it’s proven to be reliable, but many other sellers use Unicorn Smasher with great results. Sometimes the # of sales it predicts are a bit exaggerated, but between Keepa and Jungle Scout you should have a pretty clear idea of how many units are selling. As you may have seen from the screenshot we shared above for viewing the average product ranks, it also displays an estimated # of sales based on the rank.

The estimated average monthly sales on this product is 527 units, selling around $18.23 each. If you multiple 527 x 18.23, you get an estimated sales revenue of $9,607.21. If you want to analyze the product based on the current rank, JungleScout breaks that detail down also:

If the product stays at the current price and rank, it would sell 947 units per month at $23.50, which adds up to $22,255 in revenue per month! We always stick to analysis based on averages because it’s more accurate, but it’s good to see how the smallest change in rank affects the velocity of sales. To take it further, you can look at the history of sales velocity by hovering your mouse over any of the column boxes. When hovering over the Sales box, you should see this:

If you click the “view product monthly sales history” it will open up a graph of the sales history and you can view the trends of the product sales over the lifetime of the product:

If you understand how much an item is selling per month on average, you can then feel much safer when purchasing a given quantity. When a product has an average monthly sales estimate of 500, then buying 50-100 of an item to resell shouldn’t be a problem given there isn’t mass competition.

The item should sell quickly. If an item is only estimated to sell 20-30 per month, then buying 10-20 of the item to resell probably makes more sense. Using this Jungle Scout tool is awesome, and it makes it much easier to estimate sales velocity. However, you can predict sales based on the free KEEPA charts as well, which we will dive into in a moment. First, let's look into the importance of winning the buy-box on a listing.

Winning the Amazon Buy-Box in Your Online Arbitrage Business

The buy-box is the main area on an Amazon listing that includes the button “Add to Cart” for a consumer. Only one seller can own the buy-box on a listing, although the buy-box winner often rotates between sellers with the lowest offers. Around 90% of sales on Amazon are converted through the buy-box.

In the center of the listing, usually under the price and shipping details, there is an area that identifies which seller currently holds the buy-box. Basically, if you add the item to your cart, the seller in the buy-box is the seller that will actually get the sale. In the example below, you can see this item is being sold by OPOLAR and fulfilled by Amazon. OPOLAR is using Amazon to store their inventory and fulfill their orders through Amazon FBA, the same system we use.  However, OPOLAR is actually the owner of this product brand too. (good for them, this product is crushing)

Again, Amazon allows multiple sellers on each listing, as long as the sellers have permission to sell the product on the listing. Sometimes a brand is owned by one seller, and therefore there will only be one seller on the listing. This can be obtained through brand registry or possibly striking an exclusivity contract with the brand owner.

Multiple sellers on the same listing is one of the main differences between eBay and Amazon. At any time, you can view all of the sellers on a listing by clicking the “Other Sellers on Amazon” link underneath the Add to Cart button on the right.

Once you click the link, it will display the other sellers in a list:

You can see that OPOLAR is winning the buy-box because the condition of the product being offered is “new” as opposed to “used-like new” like the Amazon WarehouseDeals seller. They are also the brand owner, so no other FBA sellers are competing on the listing.

So, if you have an online arbitrage business and are selling a product on a listing, chances are you are competing with multiple other sellers who are also trying to sell the same product, perhaps also doing online arbitrage or retail arbitrage.

This causes a few problems:

  • Only one seller can be in the buy-box at a time. Amazon’s algorithms constantly rotate the buy-boxes between eligible sellers, but if you aren’t in the buy-box, you probably won’t make the sale.

  • Competition, therefore, competes for the buy-box, and often this involves competitors dropping their prices to win the buy box. This can rapidly tank the selling prices on listings, causing the ROI and profit predictions you make when sourcing to lose their margins.

In summary, make sure you and your buyers are aware of who the other sellers are on the listing you are analyzing. If you can’t win the buy box, you can’t make a sale. If your account is in good standing and your seller feedback is high, you shouldn’t have any issues rotating into the buy box if you pay attention to the following tips:

Main Factors that Influence Buy-Box Ownership on Amazon

  • Amazon favors sellers who use Amazon FBA fulfillment services or offer Prime speed merchant shipping services.

  • Offer Price - the most competitive Amazon FBA prices usually win the buy box.

  • Seller Metrics and Feedback Rating - Sellers with a long, stable history of good performance and positive feedback are likely to win the buy box over sellers who have performance issues or negative feedback.

4 Quick Tips for Owning the Buy-Box on Amazon

  • If Amazon is a seller on a listing, they will almost always be in the buy-box. Steer clear of trying to resell on listings where Amazon is a seller.

  • If there is a massive amount of sellers on a listing all competing for a buy-box, it’s generally safer to not join the listing unless the margin is large. It will be much harder to win the buy box if it’s rotating between 10+ sellers, and the sale price will probably tank by the time your products arrive. If the margin is big, there may still be profit and ROI available after the price tanks, but products with a lower number of sellers are definitely more favorable.

  • Always offer the most competitive price relative to your competition. If you are selling via Amazon FBA, then you should be matching or beating the lowest Amazon FBA price on the listing. You can still win the buy-box if your price is 3-5% higher than the lowest competition Amazon FBA seller, but chances are the lowest price will be in the buy-box. Remember, high-performance ratings and positive feedback heavily influence buy-box eligibility.

  • Use a repricer like Informed.co to automatically stay competitive with prices and win the buy-box.

That’s it for the first part of this massive guide. Make sure to read part 2 to complete your education on analyzing OA leads.

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Complete Guide: How to Evaluate an Online Arbitrage Product to Sell on Amazon (Part 2)