I came across a news story yesterday about a man who makes millions buying clearance toys at local big box stores and reselling them for a profit on Amazon. I was incredulous! How could you buy retail and then turn a profit by selling retail? So like usual, I did some digging and it turns out his business model is pretty sound.
Today, let’s talk about the ins and outs of turning a profit by reselling toys on Amazon and how to determine whether or not a particular toy has profit potential. I’ll also give you a quick walkthrough on Amazon fees and other considerations to help you determine if this income idea is something you should implement as part of your overall income plans.
Why Does it Work?
Demand at your local store is relatively independent from national demand, so even if a toy doesn’t sell well in your local store, that doesn’t mean it won’t have appeal to the type of market Amazon targets. For discontinued items, people are even willing to pay well above retail price to get what they want.
It helps to know the types of products that tend to be popular. Parents of kids in the toy-playing age have an advantage here. In my household, toys like My Little Pony, Paw Patrol and LEGO are popular. Some items tend to appreciate in value as they age too, such as LEGO and collectibles. I remember seeing a section of collectible Barbies on clearance last year. Now I wish I’d had the foresight to grab them up!
If cash flow is not an issue, you can buy collectibles and hold until the price goes up to a profit you’re happy with.
How to Get Started
First, make a list of the stores in your area that have a good clearance section. We live in a small town, so that basically limits us to Walmart, but an hour in the other direction is a larger town so we’re planning to make a shopping day of it when we make trips that way.
The best time to buy is likely right after big toy shopping times of the year, such as Christmas, but our local Walmart always has a toy clearance section.
It wouldn’t hurt at all to talk to workers at your local stores to find out the clearance schedule. Then you can plan your trips around when products are shuffled over to that section.
Download the App
While this article is aimed at selling on Amazon, I think you could also find success selling some of the more collectible and hard to find items on eBay. But for now, let’s focus on Amazon.
Your best research tool is going to be the Amazon shopping app itself. Coupled with a barcode scanner, you can easily scan and price any item in the clearance section to determine the profit potential.
Here’s an example I found browsing both sites online today:
This minion toy is on clearance at Walmart for $15.99, down from $49.97. Over at Amazon, the same toy is listed starting at $27.66.
Determine Profit Potential
There are a number of factors to consider when deciding whether or not a toy is worth buying. The first and most obvious is the price. A quick calculation of this production shows us that there maybe some profit potential. The lowest list price on Amazon is $27.66. You’ll pay tax when you buy a product in person, so that cost must be considered. Our rate is 7.6%, so that $15.99 minion toy would cost $17.21 ($15.99 x 1.076) to buy. That gives us a potential profit of $10.45, but we haven’t calculated Amazon fees into the equation yet, and they can be substantial.
Amazon has a complicated fee structure, but assuming we plan on being an individual seller, the cost would be $.99 per item and 15% of the selling price. If we successfully sold the minion toy at $27.66, the profit would work out like this:
$27.66 selling price – $.99 per item fee – $4.15 referral fee (15%) – $17.21 item purchase cost = $5.31 profit.
Now, you may be able to hold out and sell it for higher as time goes on. Also, Amazon has a standard shipping credit you’ll receive for each item, which is $4.49 plus $.50 per pound of actual item weight. If you have an economical shipping method, you may be able to see a small return on the shipping charges, but the reverse may be true as well; it may cost more than you receive in shipping credit to actually ship the item.
If you look at the list of sellers for this minion, all the top sellers are offering it with free shipping. At Walmart’s clearance price, there is no way to be competitive and make a profit with free shipping as well. Free shipping is only an option available to “professional sellers” who pay a $39.99 per month fee but do not pay a $.99 per item fee.
The conclusion for the minion toy then is that it would not be profitable to buy this item for reselling.
Consider the Time Investment
Out of pocket costs aren’t the only consideration. When doing anything as a business activity, you need to count the time you spend. If you weren’t doing this business activity, what could you be doing with your time to make money? How much would you make at a full time job? While many of us would take a cut in pay to live the dream of working from home, we still have to make a living. For me personally, I can justify making minimum wage because my costs are low and it’s worth being home with my family.
Figure out how much you’re worth per hour and calculate that into the cost of an item. How long did it take to drive to get it? Standing around price comparing? What about listing it on Amazon and obsessing over whether or not it has sold?
Even Mr. Grant from the article I linked above started out small:
“At first, Grant kept his day job. During nights and weekends, he would buy up popular items such as toys, games and home improvement supplies from Walmart’s clearance aisles.”
Dabble in some items and see how well you do. If you know a product will sell, snatch it up. When you have time, look at wanted ads and what items are selling on your local classified Facebook groups and Craigslist. Learn the market until you can walk down the clearance aisles and spot the hot items instantly.
The great thing about this income idea is that you can do it in your regularly planned shopping trips and list while enjoying a morning cup of coffee. The time investment is small, but if you know the market, the profit potential, as in Mr. Grant’s case, can be millions.