Limiting your exposure to risk in online book arbitrage.
Now there really isn't that many risks with this business. What are the limited risks of online book arbitrage? Let's break it down in five parts.
Method: Limit competing offers.
Let's say you have two books, a Chemistry book and Nursing book. All factors are equal. Same sales rank, same price. Everything is identical except for one thing: The Chemistry textbook has 20 used offers for sale, an the Nursing book has 100 used offers for sale
That Nursing book has a 5x greater chance of someone coming along and underpricing you and devaluing the book than the Chemistry book.
The reason should be obvious: There's one-fifth the total number of offers for sale.
When there was a dramatically high supply on Amazon, there's a greater chance of people coming along and underpricing you
We have the search options there to limit the total number of offers that are for sale. The lower you set that number, the lower the change you'll get dramatically underpriced (and, of course, the fewer the results you'll see as well. It's a give and take).
Method: Paying disciplined attention to sales rank history
The higher the demand of the books you buy, the lower the chances of that book not selling. Pretty obvious.
You don't want to just focus on books ranked, say, 5,000 or better because you're really not going to find many books. But you also don't want to focus on books that are ranked a million either because those books are selling pretty slowly.
So, again, it's about striking that balance.
Books that are ranked 100,000 or better on average are selling multiple copies a day whereas books that are ranked 500,000 are selling one copy maybe every three days. So there's a big range of demand on the 0 to 500,000 spectrum.
Method: Buy books with higher expected margins than you need.
One hand, this is kind of obvious. On the other, most don't practice this.
Let's just say your profit margin standards are you need to expect to get a 75% return on your investment. Meaning you don't invest in a book unless the lowest FBA price or the price you plan to list it at will get you at least 75% returns.
Consider buffering potential price drops into your margins and your buying standards and increasing that to 100%, to protect against unforseen fluctuations.
Some prices will go up, some will go down, and you'll safely average the 75% returns you seek.
Method: Know what these are and how to spot them.
Know the warning signs of damaged or counterfeit or other unsellable books.
Specifically, this means having basic systems in place to prevent buying:
Since each of these has their own article, rather than re-explain here, I'll point you t the relevant resource:
Damaged books
Resource: Acceptable condition: Knowing the risks
Counterfeit books
Resource: How to spot a counterfeit textbook
International editions
Resource: Understanding International Editions
This is about narrowing the gap between when you purchase a book, and when it's live for sale. This limits the chance of the pricing environment changing dramatically.
The biggest ways to do this are:
I'm going to sound like a broken record, because in virtually all the Zen Arbitrage training, I'm constantly pushing reprice, reprice, reprice, reprice.
How will repricing decrease your risk? One, increasing how quickly your inventory sells. Two, decreasing the likelihood of a book selling for less than what you anticipated because of people coming in and underpricing you.
One repricing trick I recommend that most people don't do that's really powerful is this: When you create a shipment and you ship it in Amazon, go through and reprice when it hits the warehouse.
The majority of prices will shift between when you ship something and when it arrives at the warehouse. You want your prices optimized when they go live for sale in Amazon.
Again, after your books hit the warehouse, reprice as often as you can.
This is as much as about increasing your prices as it is about decreasing. It's about always making sure that you're positioned exactly where you want to be in terms of where you are in relation to other FBA sellers.
This can't be stressed enough.
Method: Check Keepa pricing history.
This prevents you from spending more than you should.
You always want to confirm the offer that you're buying is not higher than average (at least not significantly).
A deal's a deal no matter when you're buying the book, but if a book has an average price of $10 and you're paying $60, you'll probably want to wait for the book's price to drop again. And this will happen a lot.
This can be the difference between saving $20 or $30 on a single purcahse. So this is a big one.
We show Keepa charts inside Zen Arbitrage, and its also strongly recommended you install it in your browser (link here).
Yet another way to limit risk: I will personally review any ISBN that you send to me and give you my analysis. Having a second set of eyes on a book can be a great way to catch a detail you may have overlooked, and I'm happy to do it.
I will tell you: Would I buy it? Would I pass on it? What would I sell for? And anything else you'd like to know.
To Recap
That's every way to limit your risk (or at least the ones you can control)
Consider it this way: If each one of these seven things reduces your risk by 10%, when you incorporate all of these into your purchasing process, in aggregate these will make a huge impact.
My goal with this article is that you incorporate every single one of these into every single purchase.
Thanks for reading.
- Peter Valley