Seven years ago, Larry Lubarsky was unemployed and $100,000 in debt. Today, he’s a 38-year-old small business owner, running a company that brings in millions of dollars per year by selling thousands of different products on Amazon.
“I didn’t have a career, I didn’t have any money to my name,” Lubarsky tells CNBC Make It. “I was living with my mom, I was severely in debt, I couldn’t afford my phone, my car.”
His business selling products on Amazon “saved my life financially,” Lubarsky says.
Lubarsky buys a wide variety of products in bulk — from electronics and kids’ toys to health and beauty supplies — and then he re-sells them on Amazon, all while trying to turn a tidy profit. He engages in a business model known as wholesale arbitrage, which sees him buying large quantities of products from wholesalers or large brands.
As Lubarsky previously told CNBC Make It, he might see a Nerf gun available for $10 each from a wholesaler, but the product is selling for $20 apiece on Amazon. In that case, he knows that he can make about $5 profit on each Nerf toy after paying the fees that Amazon charges its third-party sellers.
In 2017, Lubarsky’s business pulled in roughly $18 million in revenue, including a net profit of $4 million, from selling products on Amazon. Lubarsky only launched the business in 2014, and he brought in more than $3 million in that first year, he tells CNBC Make It.
So, how does Lubarsky do it? Here are a few tips from Lubarsky that reveal the basics of how to be a third-party seller on Amazon.
Start with seed funding
First things first. You’ll need money to get started, so you can buy wholesale products to sell online. Lubarsky told CNBC Make It that he pitched his Amazon selling business to a few friends and family members before one friend believed in him enough to invest $60,000. Lubarsky spent about $10,000 of that amount on renting a small office space and on shipping supplies (to ship the products he’d sell on Amazon). He used the rest of the money of to buy his first batch of inventory, including almost 100 different wholesale products that he knew would sell well on Amazon and return a respectable profit.
How to get the products
Lubarsky relies on wholesale companies, or even large brands, that are willing to sell products in bulk for resale. It’s the best way to get a large quantity of products at a discounted price, he says.
“What I basically do is buy directly from big national distributors, or brands direct,” Lubarsky tells CNBC Make It. “I open wholesale accounts with them and I basically have access to their products and to their catalogs, and I go through all those tens of thousands of products that I can get my hands on.”
If you’re just getting started, though, Lubarsky’s advice is to stick with wholesalers, versus reaching out to large brands (like Hasbro, which makes Nerf toys) directly. “For someone new, it is probably easier to source product from large distributors and wholesalers than it is to approach brands directly,” he tells CNBC Make It, noting that larger retail brands are likely “being approached by five to 10 different e-commerce people, or Amazon sellers, a week” trying to establish relationships.
Do your research
Of course, Lubarsky’s business only works if people are actually willing to buy the products he buys in bulk — otherwise, he’s left with unsold inventory. In order to decide what to buy, Lubarsky and his employees research extensively using Amazon’s Fulfillment by Amazon (FBA) site, which offers sales-tracking tools to third-party sellers that can tell Lubarsky how many units of a particular product are typically sold each day.
“First and foremost, I look for sales velocity, because if I’m spending money I want to know that, no matter what, I can sell that product and get my money back,” Lubarsky says. For the most part, Lubarsky is unlikely to consider any product that is outside of the 50,000 top sellers on Amazon’s ranking.
The second factor he considers is the expected return on his investment (or ROI). He wants any product he’s buying to give him at least a 30 percent ROI, so that if he buys something for $10 per unit, he’ll make about $3 on each sale. And Lubarsky requires a minimum of $3 profit per item, because otherwise the margin is too small to be worth the effort.
“I won’t take a 30 percent ROI on a $2 product,” he says, because the profit would only be 60 cents.
Plow profits back into the business
Getting a 30 percent return on a big investment might make you want to kick back and enjoy spending your profits. But Lubarsky says the only way to scale this type of business is to continuously reinvest, which means buying more and more inventory.
The $50,000 that Lubarsky spent on his first batch of inventory returned a $20,000 profit, for a total of $70,000, he says. He took that entire sum and bought even more inventory, which soon turned into a total of $100,000, and so on.
“When we started the business, we didn’t pay ourselves. We didn’t take a dollar for, I think it was like a year, maybe even upwards of a year and a half,” Lubarsky says. “We just kept selling stuff, taking the money, reinvesting it into new products.”
Roll up your sleeves
Of course, there’s nothing simple about starting and running any successful business — and, these are just Lubarsky’s tips on the basics of operating as a third-party seller on Amazon. But, if you’re looking to follow in the footsteps of someone like Lubarsky, he says his best advice is to be as dedicated to the venture as you would any other full-time business.
“For people who are completely new to the business and starting out with wholesale, my No. 1 piece of advice to you would be to understand that, like any business … it requires a lot of work,” Lubarsky says. “If you’re willing to put in that work and build a real business, and grind and hustle, then this business is for you. If you’re kind of looking for, like, a little side-hustle [or] side gig, wholesale — I’ll tell you right now — isn’t really the right thing for you.”
This article was first published by CNBC https://www.cnbc.com/2019/02/11/tips-for-making-money-on-amazon-from-a-seller-bringing-in-millions.html and is republished with its permission.