How to Earn Extra Income on eBay using the Clearance Stock Business Model?

Buying brand new goods from wholesalers, distributor or importing from China and Far East is not the only way to generate a good amount of income.

Buying from wholesalers and authorized distributors is great, but the model has its own complications and issues. For instance, most authorized distributors or manufacturers do not want to sell to eBay sellers as they do not like associating themselves with the online auction business. You may also need established business accounts, keep credit cards on file, provide references and stick to the minimum order quantity requirements on top of other terms.

Similarly importing from China is the ultimate way to build a successful business on eBay, Amazon and even your own online ecommerce shop. But you have to deal with:

• Finding reliable suppliers
• Import duties
• Arranging international shipping
• Paper work
• Custom clearance
• Complicated business incoterm terminology

And so on…

There is another way of modelling your business without importing from China, opening business accounts, keeping credit cards on file, or minimum order requirements. Unlike authorized distributors, the suppliers will love as they especially

cater to the needs of eBay, Amazon and other online auction or ecommerce sellers.

This model is what is known as the clearance items model.

There are many big suppliers who specialise in dealing with clearance items and are particularly popular among eBay sellers.

In my early days, I used a few of them and in a few cases made some fantastic profits selling clearance items. Over the years, I have changed more to selling brand new items directly imported or bought from authorized distribution channels.

But…

This system still works. And I still use it whenver I find time for it.

And over the years as the demand for such items has grown, there are now more specialized suppliers than were around 10 years ago.

So, in a nutshell.

The system now works even better.

It is a great system for those with limited buying power or those who just want to top up their income by working part time. However, it does not mean that the system cannot be fully utilised by working even full time.

In this post, I will be talking about the various terminology, types of stock, where to get the clearance stock, what precautions do you need and how to sell it for potential profit, and how to successfully list them on eBay.

Clearance Stock Explained

Liquidation Stock Before you decide to jump in to the clearance stock business, it is very important to understand the various types of stock. Without an in-depth understanding of the type of stock you buy, it is risky to go on this adventure.

Liquidation stock means goods that are sold by closing down outlets. Such stock is mostly new with tags attached. The prices are very low just to clear the stock and generate some cash.

However, you need to pay attention to the fact that some liquidation companies also sell salvage stock. This stock is mostly of no use and only can be used as spares. I do not recommend buying salvage stock unless you are an expert to sell or use the parts as spare for profit.

Liquidation.com has a section for such stock. It is the lowest in price range and mostly the bidding starts just from 0.1 cent or a little bit higher.

Clearance Stock

These are goods that have been in the shop shelves for a long time and could not be sold for a variety of reasons. They are normally brand new with all the tags attached. The company could not sell them in a certain period of time. For the company such goods are unproductive and hence needs to be cleared. In order to get rid of the stock, the company may sell them even below purchase price just to generate some cash.

Overstock

This generally means that goods bought excessively which could not be sold as planned. Overstocked goods are more or less like clearance stock. They are generally brand new with tags attached and can be sourced on lower prices.

Customer Returns

This is the most tricky part of dealing in the clearance business model. Customer returns can be of different types.

Unopened, Unused and Boxed

These returns are normally either wanted gifts, remorse or simply the customers changed their mind and returned the goods under the return policy of the vendor. Such goods are unused and still in their original box. They can often be purchased on very cheap prices and hence can be traded on eBay for good potential profits.

Tested but Opened

These are customer returns which have been tested by the company and have been found to be working. However, the box or packaging might have been opened and may have signs of use.

Some goods may have been used for certain period of time during which the customer can return the goods such as 14 or 30 days return and refund policy. They are sold cheaper than unopened return. However, you must not class them as brand new and mention the details of the condition in your listings.

Untested Returns

These are mostly items which have been used by customers and then returned to the source company for reasons such as under warranty, money back guarantee, insurance etc. Such goods are mostly faulty and need to be fixed before they can earn you any money. I have never dealt in untested returns and never recommend it to others.

Ex-Display

These are goods which have been used by retailers for display purposes. After a certain period of time these goods are removed from display stands and sold as ex-display items.

Ex-display items are normally in very good condition with slight signs of use. They are boxed and come with tags, instructions and warranties etc.

As Seen or As Is Basis

I personally stay away from such goods and do not recommend them. These goods for the most part or damaged or faulty and can be classed as junk. Unless you are an expert in the field to sell their parts or do some repairs, these are not worth the time, effort and investment.

Spares or Repairs

As the name suggests, these items are faulty and sold as spare or repairs. Unlike untested returns where your may still find an odd item working, these are totally faulty goods. Again, I personally stay away from such goods and do not recommend unless of course you are able to make something out of them by fixing them before sale or selling them in parts.

Clearance Stock Grades Explained

Clearance companies often used grading system to classify their stock according to their condition. There is no universal or uniform formula for grading clearance stock. However, the following is a general grading system used by most companies. Make sure, you check the company grading system before you decide to buy as each individual company might be operating their own unique clearance stock grading system.

Grade A

Usually brand new, working and boxed without the signs of use.

Grade -A

These are items which are in working condition and boxed but may have signs of use. Most ex-display items are graded under this grade.

Grade B

These are items which are boxed, but they have signs of use and may not come with tags, papers etc. However, they are generally in working condition.

Grade -B

These refer to goods which are working but have sings of used and may not come with original packaging.

Grade C

These are generally items which may be faulty or have significant signs of use.

Beware of Inflated RRPs or MSRPs

If you find buying stock in closing down outlets in the offline world, you would most probably not worry about this. Most of these items in the offline outlets will have original price tags attached to them and you can tell if it is a real deal.

When it comes to these middlemen type online companies, you need to be alert to the fact most of times these companies show inflated RRPs pretending to be selling the items at ridiculously low prices.

For instance, you will often see items sold as low as 5 to 10% of the recommended retail prices. So, if a pallet or a box has a total RRP of $2000 and it is advertised as 90% off (i.e. 10% of the retail value) the purchase price shown will be just $200 dollars!

Don’t jump in yet..

Most of the times these so called recommended retail prices are not real. Additionally, most prices are pre-sale tax or ex-VAT, which means that taxes will be added to the final price. Also, shipping is added during check out unless you opt to collect them if the company allows onsite collections.

Additionally, you will also be adding eBay and PayPal’s fee to the price. Shipping and packaging material is yet another expense to be added to the price.

As these are clearance items, you may also come cross some imperfect goods even if they are the best grade. So, you must make a provision for such items.

How to Buy Clearance Items at the Right Price?

Once you locate an item and you are interested to buy and then sell it on eBay, it is highly recommended you do your homework. Here is a step by step guide on how to work out the best price.

1. Open a spreadsheet and create columns for purchase price, Sale tax (or VAT) eBay Fees, PayPal fees, Shipping and Packing.

2. Create another column showing total expenses.

3. Now go to eBay and search for the item in the sold listings.

4. Add up the price of, at least, 20 sold listings and divide it by 20. This is your average sale price.

5. Create another column in the spreadsheet and call it sale price.

6. Deduct the total expense column from the sale column.

7. If the value in this column is negative, don’t buy. If the value is positive, you can go ahead.

Again even if the value is positive, you still have to consider if the margin is worth the time and effort. If margins are extremely low, you should not be buying it.

For more in-depth research, I recommend subscribing to Terapeak here.

Where to Buy Clearance Stock?

There are many companies specialising in clearance stock. Here are a couple of them in the US and the UK.

Clearance Stock Companies in the US

1. Liquidation.com

This is one of the most popular sites in the US dealing in second class stock. Although, the name suggests that the company only deals in liquidation stock, this is not the case. There are other categories as well such as returns, salvage, clearance and even brand new liquidated goods.

I personally do not use liquidation.com regularly. However, I have certainly used it for the new goods categories and occasionally have grabbed real bargains. The problem with the site is you have to do a lot of research and browsing before you really get some profitable stuff.

Most newbies fall in to the trap of returns or salvage goods. Personally I never ever recommend them unless you have a perfect knack for such goods.

Another important note is to avoid bidding in the last 15 minutes. If you bid in the last 15 minutes, the auction automatically extends for  further 15 minutes. This sometimes inflates the ending price.

Do your homework before your bid. Include all the costs and then see the average sale price on eBay. Once you are sure, place a bid for the amount you are ready.

Make sure that you add two things in to your final price you are ready to pay for. These are: Buyer’s premium and Quantity variance.

Buyer’s premium is the standard auction fee charged by the site to cover their costs. Currently the fee is 8% of the purchase price.

Quantity variance is another fee added to the final price which ranges between 1 to 10%. This seems be to the most silly thing I have ever seen on any wholesale clearance site.

2. Biglots.com

If you are looking for branded items, Biglots.com is a good place to start with. I recommend that you check their website for some really crazy deals. Not all items are  sold online and you may have to locate a store by entering your zip code in to their store locator.

Tuesdaymornings.com

If you are after a real treasure hunt, tuesdaymoring.com is the place. You will have to visit several stores separately as they do not have a very smart way of managing their inventory separately. I have personally found some of the super profitable deals in their stores. It is worth checking.

Other US clearance sites

• mygabes.com
• salehoo.com
• overstock.com

Clearance Stock Companies in the UK

GemWholesale.co.uk

This is the number 1 company I have been dealing with for years. Apart from an excellent range of stock, they have a very good site in place where it is super easy to order goods. Goods are classed as grades A, B, C etc. They also stock brand new items as clearance and offer some of the best deals.

The despatch time is reasonably quick and shipping charges are extremely fair. You can also collect goods in person by arranging an appointment with the sale staff. Moreover, you can take a virtual tour of the company just by visiting their website.

You can order stock in pllates, boxes and sometimes even truck loads and containers.

TheTrader.co.UK

It is the online version of the very popular trader magazine. It is itself not a clearance company, but you will find almost any reputable clearance business featured in the offline as well as online version.

If you are seriously thinking entering in to clearance items model eBay business, I highly recommend visting trader.co.uk and also subscribe to the hard copy version. I am sure that I found 80% of UK clearance and return stock suppliers through the Trader.

Marthill.co.uk

They deal in almost all kinds of goods but really excel in ex-catalogue returns.  The company classify its goods in to the following grades.

Returns: Goods returned by the customer to the source company.

Clearance. No longer carried by the source company due to stock storage.

Grade 1

Returns that have been tested, checked and found to be working. There may be some signs of packaging damage.

Grade 2

These are also customer returns found to be faulty and need to be fixed.

I recommend you stay away from Grade 2 stock. The rest of the grades are ok provided you do your homework before you make any purchases.

ArgosClearance.co.uk

The is one of the best sources in many respects for buying clearance stock. First, you definitely get only orginal and genuine branded goods. Secondly, the popularity of the company. Third, they have huge amount of stock to clear. Finally, there are different size of lots and you can bid for ones which suit you depending upon your budget.

They, too, grade item depending upon the item condition.

I have used the company again and again with great success. I personally buy only A, -A and B+ grades. Other than that I do not bother.

If your budget allows , the container deals for A, -A, B+ grades offers excellent potential profit. We were able to recently buy a full size container of 200 large size items. As the size of the item was large, we had to hire storage locally. Adding the cost of storage, the net amount per item was £40. Trust me, we could not source the same thing even from the manufacturer in China for the same price.

We were able to sell the items for £120 in the Buy Now price plus actual shipping charge.

Not bad, is it?

Other UK Clearance Sites

• QClothing.co.uk
• WholesaleClearance.co.uk
• ElesClothing.co.uk

What About eBay Wholesale Category?

eBay also offers a wholesale section where people list wholesale items, job lots, pallet deals, ex-catalogue items and other end of line goods.

To be honest, I have never bought stuff on eBay wholesale category for resale. However, I have sold smaller lots and bundle with limited success.

There is no harm checking the eBay wholesale section for finding possible deals.

Precautions and Warnings in Dealing Clearance, Used and Returns Goods

If you model your business around clearance or returns goods, that is great. However, here are some of the things that you must consider before following this model. These warnings and recommendations are based on my own opinion and 10 years of eBay selling experience.

1. Do Not Buy Faulty Items

I would rather say run away! Simply because most of the damaged, spare or repair, salvaged and other such items are beyond repairs. Some new eBay sellers are highly trapped by the cheap wholesale price and they buy in the hope of selling them for big margins. Soon, they realise all they bought was pure crap!

2. Always Add Hidden Charges

Most companies display pre-sale tax (or ex-vat) prices. Do not be taken by surprise when sale taxes or VAT is added to your final bill.

3. Take the Shipping Cost into Account

Shipping costs matter. If you buy a lot containing 5 items and the shipping cost is $20, you should be adding $4 per item to your final price.

4. Do Not be Fooled by MSRPs

The recommended retails prices displayed are either inflated, fake or just incredibly high. Do not base your buying judgement on MSRP’s. Check the actual price and then make your decision.

5. Provide for Odd Items

Even if you buy A grade or new items, there are still chances that you will get an item or two ( sometimes even more) which are of no use. Make a provision for such items by adding them in to the final price. You can do so by dividing the price of such items by the total number of items in the lot and then add it that to the final purchase price.

6. Verify the Seller

Like in the import, wholesale, drop shipping and online commerce, there are con artists here, too. Do not simply rely on the attractive and flash websites. Verify the contact details, phone numbers, email and postal address. If you are in doubt call them using the contact details provided on their website. Remember, genuine businesses will always mention their physical postal address on their website.

7. Start Small

Don’t be allured by the seemingly attractive prices. Start with a small order to test the water. Once you know that there is potential, gradually increase.

How to Sell?

Remember, you are not the only one buying from these sites. In my one decade experience, I have seen many new eBay sellers start with this model. The problem with these inexperienced sellers is that they cannot correctly workout their price and will list items for a very low price.

For instance, when an brand new sellers see an item on the clearance sites for $10, they will list for $15 thinking  to get $5 dollar profit margin. They fail to realise they have to include taxes, shipping inward, shipping outward, provision for faulty goods, eBay fees, PayPal fees etc. I have seen many such sellers who are out of business in no time just because of their lack of knowledge and experience.

The problem these sellers pose is not that they kick themselves out of the business, they create tough competitive environment for other knowledgeable and genuine sellers. However, the following tips will help you a great deal to outdo them.

Create Excellent Titles

Most of the sellers as mentioned above do not know how to create perfect listing titles to increase their click through rate. Work on your titles by incorporating keywords that will help your listing rank in the search results.

Write Unique Descriptions

Most newbies just copy and paste the descriptions from the vendor’s site. Little they realise that the same descriptions have been used by thousands of other people in many other places.

Write your own unique descriptions by mentioning features and benefits of the product. Do not exaggerate and describe the true picture of the goods.

Shoot Your Own Images

Yes, it takes time and requires skill to take great images. Most of the time you will see very limited images coming with the stock sold by the clearance company. Do not copy them. Instead, shoot your own images to make your listings stand out from the crowd.

Is This Model Viable?

Yes, of course. This is a viable model and many eBay and even Amazon sellers are quite successful buying clearance stock and selling it onward for profit.

However, there are a few downsides of this model.

1. You will be running all under one roof type of business.
2. You will not get constant supply of the same stock. Stock will keep changing.
3. You will be constantly looking for new stock and even new suppliers
4. Your winners may be only one off once they are sold out.
5. There is a good deal of competition from new eBay sellers.

Conclusion

This model is great for those who want to get started with low budget. You can simply buy small quantities and test them before going bigger.

It is also easy to find a lot of information about the products as they are already on the company’s or vendor’s website.

You can source genuine branded goods without going through the complication of importing it directly from China or the Far East.

However, there are also downsides such as sourcing new stock continuously, faulty items, competition, customer returns and refunds etc.

Overall, it is a great way to start with a supplier or two and then expand slowly and gradually.