Chapter 7: Profit, ROI and cash flow
What you'll learn: how to work out the real profit on a product, what ROI tells you, how to choose sensible minimums, and how long your money is tied up between buying and getting paid.
The profit formula
For each unit:
Profit = sale price − Amazon's fees − VAT effects − your other costs − what you paid for the product
- Amazon's fees: referral, fulfilment, surcharges and storage (Chapter 5).
- VAT effects: VAT on Amazon's fees if you're not registered, or VAT on the sale (less what you reclaim) if you are (Chapter 6).
- Your other costs: prep supplies and shipping your stock to Amazon.
- What you paid: the price at the retailer, including any delivery charge, after discount codes.
ROI and margin
Two percentages tell you how good a deal is:
- ROI (return on investment) = profit ÷ what you paid for the product. It tells you how hard your money is working. A £3 profit on a £6 item (50% ROI) uses your cash much better than a £3 profit on a £30 item (10% ROI).
- Margin = profit ÷ sale price. It tells you how much room you have if the price drops.
ArbiSource shows profit and ROI on every result. Most arbitrage sellers think mainly in profit per unit and ROI.
Worked example: the boxed toy
Not VAT registered, selling at £24.99, bought for £12.00. We've added example prep and shipping costs. Yours will depend on your supplies and carrier.
| Amount | |
|---|---|
| Sale price | £24.99 |
| Amazon's fees, including one month's storage (Chapter 5) | −£7.10 |
| VAT on Amazon's fees (20%) | −£1.42 |
| Prep (label and polybag), example figure | −£0.20 |
| Shipping to Amazon, example figure | −£0.30 |
| Product cost | −£12.00 |
| Profit | £3.97 |
| ROI (£3.97 ÷ £12.00) | 33% |
Break-even price. Work backwards to find the lowest price at which you'd make no loss. For this toy it's about £20.10, so you have about £4.90 of room if other sellers lower their prices. In ArbiSource, you can find it by typing lower sale prices into a result's Sell box until the profit reaches zero.
Use the average price, not today's price
A product's Amazon price can spike for a few days when stock runs low, then fall back. If you buy at the spike, your profit can vanish.
So always check the profit at the product's average selling price over the last few months as well as today's price. In ArbiSource, each result's past-performance table shows the average Sell Price over the last 30, 90, 180 and 365 days, worked out from the price at each sale (BSR drop), with the Profit / ROI at each. To try a price yourself, type it into the result's Sell box.
If a product is only profitable at today's price, treat it as a watch, not a buy. That's the Money question in the Lead Check (Part 5).
Choosing your minimum profit and ROI
There's no single right number, and you'll see very different figures quoted online. Rather than copying someone else's, choose your minimums based on:
- Your costs per unit: your minimum profit should comfortably cover prep, shipping and the time it takes you.
- Your risk: a lower ROI can be fine on a fast, stable seller; a slow or price-volatile product needs a bigger cushion.
- Your cash: if your budget is small, a higher ROI helps it grow faster.
Start with modest minimums in your ArbiSource filters, so you can see a wide range of products while you learn (4.3). Raise them as you work out what a good deal looks like for you.
Cashback
Cashback sites can lower what you pay, and ArbiSource has a cashback button on results where it's available. Offers vary, and cashback can be delayed, declined or capped, so check the terms for each retailer.
Cash flow: how long your money is tied up
Profit is only half the story. The other half is how long your money is out of your hands. A typical online arbitrage cycle looks like this:
| Stage | What happens | Roughly how long |
|---|---|---|
| 1. Buy | You pay the retailer | Day 0 |
| 2. Delivery to you | The order arrives | A few days |
| 3. Prep and ship | You label and pack it, and send it to Amazon | Depends on your routine; many sellers ship weekly |
| 4. Check-in | Amazon receives your boxes and makes the stock available | Usually a few days, sometimes longer in busy periods |
| 5. Sale | A customer buys | Depends on how fast it sells |
| 6. Funds released | Each sale's money is held until 7 days after delivery to the customer | About a week after the sale |
| 7. Settlement | Amazon pays out every 14 days | Up to 14 days |
| 8. In your bank | Transfer from Amazon | A few business days |
Source: Amazon's payout and reserve policy.
Put together, a month or more between buying and getting paid is common, and slow sellers take longer. That's why:
- Fast, steady sellers grow your budget quickly. The same £100 can go round several times in a few months.
- It pays to keep some cash back for good deals that appear while your money is tied up.
- Reinvest gradually as payouts start to arrive.
Payments dashboard: total balance, the amount available, the amount held back for 7 days after delivery (DD+7) and the next settlement date. Simplified illustration – the real screen may look different.
Track what really happened
The profit figure in ArbiSource is an estimate made before you buy. Your real profit depends on the price you actually sell at. A simple purchase log (date, retailer, ASIN, quantity, cost, target price) lets you compare the two and learn from every buy. A ready-made purchase log is in Downloads.
Checklist
- I can work out profit and ROI for a product, including VAT effects
- I check the profit at the average selling price, not just today's price
- I've chosen starting minimums for profit and ROI, and set them low enough to learn
- I understand that my money will be tied up for a month or more on each purchase