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Arbitrage on Amazon – Myths and Mistakes

It can be very easy to fall into the common mistakes that most beginners' make or miss!
Quick Jump

Amazon arbitrgae is, without a doubt, the most beginner-friendly launchpad into starting your Amazon business. It’s simple, straight-forward and effective. However, if you’re brand new to selling on Amazon, or in the phase of trying to learn as much as possible, it’s easy to make the common mistakes that most beginners do or miss out on a chunk of small, yet important, things you need to do! Let’s break down some of the most common mistakes that new Amazon sellers make and clear up some confusion on certain Amazon processes (… ungating).

Ungating Products – If you’re gated does it mean you can’t sell?

As a new seller on Amazon, you’ll often find that when you try and sell certain brands/products you’ll need to request approval to sell them. This means that you need to ungate that specific brand/product. It’s a very simple and straight-forward process, however, it’s one of the most common Amazon myths. Just because you’re gated on a product, it does not mean you cannot sell it. If you were to avoid selling every brand/category you’re gated on then you wouldn’t be selling very much whatsoever! Each time you ungate a brand/category you won’t need to do it again, it’s almost like a videogame where you progress from one level to the next and unlock different perks as you go on.

To ungate a brand/category you’ll need to provide Amazon with a VAT invoice showing the purchase of a minimum of 10 units from a manufacturer/distributor. That means that we won’t be able to use a normal retailers receipt, if we’ve purchased the products via retail arbitrage, as it needs to be a VAT invoice. People tend to get quite confused by the ‘manufacturer/distributor’ requirement here, in fact, Amazon will accept a VAT invoice from pretty much anywhere, this can be a completely standard online retailer like Notino, even SportsDirect for example!

So, to ungate a product we’ll need to purchase 10 items from anywhere that provides us with a VAT invoice – that’s a little simpler. But what if it’s a different item? You don’t need to use the same product, you simply need to ungate the brand/category itself. For example, if you wanted to sell Lego Item A that you purchased from Tesco, you’re not gated on that specific item, you’re gated on the brand Lego itself. To ungate Lego, we could then purchase 10 units of Lego Item B from Lego, for example, as they will provide us with a VAT invoice.

What if I can’t sell the item for a profit? I’ll be loosing money! Even if you were to lose money on the initial ungate, being able to sell that brand/category will make you far more profit in the long-term. Sometimes, ungates can of course make you a small profit/break even when you do in turn sell them on Amazon. However, with ungating you don’t need to actually send the items you use into an Amazon fulfillment centre nor do you need to sell them. Therefore, you always have the option to return the items you purchase for the purpose of ungating back to the retailer for a full refund.

VAT Exemption

When you reach £90,000.00 in revenue, you’ll need to register for Valued Add Tax (VAT). However, many sellers will not be at this level yet, of course you’re likely not going to hit £90,000.00 in sales over night! As a new seller, Amazon will automatically charge you VAT on fees unless you provide them with evidence you are not yet a VAT registered company.

Often, brand-new sellers can struggle to find profitable products or, when they do find profitable products, end up making far less profit on their sales as they do not know about Amazon’s VAT exemption policy. Updating your Amazon VAT settings and requesting VAT exemtion from Amazon will sky-rocket the profit you’re making, to really understand this let’s look at the figure if we were to sell a Lego set on Amazon, we purchase it for £15.00 and can sell it on Amazon for £36.99. If we did not change our Amazon VAT settings then we would be making £9.07 in profit (60.47% ROI), but what if we had requested VAT exemption? Instead, we’d be making £12.73 in profit and a 84.87% ROI!

Automatic Business Invoicing

Most orders you receive on your Amazon account will be from personal Amazon accounts; however, occasionally you will have orders from business Amazon accounts. When you receive an order from a business customer, you’ll need to upload an invoice within 24 hours of receiving the order. If you do not do this, you’ll get a mark on your Amazon account, increasing your invoice defect rate (IDR), which can lead to suspensions if this gets too high.

Most Amazon accounts will be eligible to enrol in Amazon’s automatic VAT invoicing program, which you can register through your Seller Central account. However, if you attempt to enrol and your account is not eligible yet, you’ll need to use a free invoice generator. Here, you’ll simply be able to create the invoice, add your logo, sale price, order number, address etc. Most accounts which are not yet eligible for automatic business customer invoicing will be invited to the program within a few months of selling on Amazon.

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