Online Arbitrage: BowTiedMahi Escapes the W-2

Level 2 - Value Investor

Welcome Avatar! Quick switch here. The paid post will be for Monday since we’re guessing a lot of you will be interested in how the markets react to the recent Gaza news. Instead of writing something that will likely be obsolete in 12 hours, we’re going to flip it around this week.

The main stuff is pretty clear: 1) oil up, 2) defense typically up and 3) bonds are “it depends” if yields are down it means flight to quality, if yields up it means worries of more inflation, spending and higher for longer. We’ll outline the options Monday.

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Today’s post is the latest Jungle member to escape the W-2 machine.

Considering all of the horrible news over the weekend, this will be a much needed break from the madness and yet another one has escaped Shawshank.

Hope you enjoy it and stay toon’d for Monday!

Online Arbitrage with BowTiedMahi

Hello, I’m BowTiedMahi - the newest full-time cartoon in the Jungle. I specialize in a business model called Online Arbitrage, which is the process of purchasing cheap stuff from retail stores and reselling it on Amazon for a profit. 

I started selling on Amazon in the summer of 2021 with $300 and have since scaled to an operation that has generated 1.5 million dollars in revenue. Combining this + some info product sales, I now make well over 2x my monthly salary from when I was an entry level software developer.

BTB has kindly given me the opportunity to share my story - I’ll try to go over what I feel like the key moments were in growing my business and what I learned along the way.

Background

I’m a pretty young guy relative to most readers of this newsletter - I graduated college in 2021 during the Zoom era (which was awesome, I got to cheat in pretty much every class) and was on the market for my first job. 

Growing up, I always had some sort of side hustle - I liked working and making money, but I hated the idea of having a proper job with set hours. I spent 5 years as a soccer referee, and I’d consider it one of the best ways to make money as a young person (if you can handle the abuse from rabid coaches / parents). I made anywhere from $20-50 per game and got to set my own schedule, which was a great setup for someone who was in school. 

Even though I knew I needed to find employment, I still wanted an extra way to make money. By some stroke of luck, I found one.

Textbooks

The path to wifi money started in May of 2021 when I saw a Twitter thread from Jarrylew on how to flip textbooks online. At the end of the thread was a link to a $40 Gumroad course. Prior to finding this side of the internet, I was a frugal bro who had his sights set on retiring early. I hated spending money. Despite all odds I ultimately decided to buy the course, and the rest is history.

The textbook model is very straightforward:

Step 1: Buy used textbooks on eBay from people who either didn’t need them anymore or warehouse book companies

Step 2: Resell them through Amazon FBA where you can charge a premium with Prime shipping

Step 3: Repeat

The difficult part (as with any reselling endeavor) was actually finding profitable books. There was a very steep learning curve, and I remember spending hours not being able to find anything. After 2 long weeks of grinding, I found 12 books that I thought would be winners and sent them in to Amazon. Let’s take a look at how they performed:

At the end of it all, I made $60 in profit from this first shipment. 

Two whole weeks of grinding - and all I had to show for it was $60.

Despite this, I knew that I was improving and didn’t give up. I kept practicing and created systems for how I would search for profitable books on a daily basis. Soon enough, my efforts would pay off and I would get some bigger wins.

My most profitable flip to date was an engineering textbook. I bought 3 copies brand new for under $100 each and sold them all for over $270, nearly doubling my money on each one after FBA fees. I had started to gain some traction and envisioned this as something I could do for a second income stream. Shortly after this, I created my Twitter account and started writing about my book flipping business on Substack. To my surprise, the few people who read it actually liked it.

By the end of 2021, I had capped off the year with $10,000 in revenue and around $2,500 in net profit. It wasn’t much, but I knew that I found something that worked.

Transition to Arbitrage

Towards the end of the year, I started learning more about selling other types of products on Amazon. I had watched a couple tutorials on YouTube and came to the realization that these guys were using the same exact methods that I was using to find profitable stuff, except they were selling different products - makeup, shampoo, toothpaste, socks, and more. 

While I enjoyed selling books, one thing I didn’t like was the fact that you usually weren’t able to buy more than one or two copies at a time - this made it difficult to operate at scale. As I read more posts from BTB my mindset slowly shifted from “If I made 3k/month from this that’d be cool” to “Holy (explicative) I need to get rich NOW”, and I thought that branching out to other products would help with that.

I picked up a business credit card and an LLC going into 2022 with the intention of scaling the business and seeing how far I could go.

I started off small, testing the waters with low cost products from popular retail stores like Walmart and Walgreens. My bread and butter in the first few months were grocery products I could buy for $4-6 and make $2-3 profit. Because you can’t return (most) grocery products, returns were nonexistent and I was starting to grow pretty quickly. I remember spending the first few months of 2022 staying up late in my bedroom, putting stickers on vitamins and bars of soap so I could drop them off at the UPS store before my morning meetings.

The business model really didn’t change much - buy cheap stuff, resell it on Amazon for a higher price and repeat. I quickly went from 10k revenue months to 30k revenue months by mastering the basics and keeping at it over time. To tell you the truth, there isn’t much that’s changed from back then to now other than the types of items I buy and the quantities I buy.

Ultimately, I was starting to reach a point where the labor of prepping products was more than I could handle. This is where outsourcing comes into play, and where I would learn a lot of valuable lessons over the next year and a half about being a proper business owner.

Outsourcing

I’d like to preface this section with a controversial opinion - outsourcing in the Amazon space (specifically sourcing VAs) is a poison chalice. The idea of having a business that runs on autopilot while you do nothing sounds great on paper, but it ultimately comes with some pretty glaring downsides:

1. To have a business like that actually succeed, you need to invest a lot of time / resources into employees so they can keep things running without you (99% of sellers don’t do this)

2. You lose the drive and motivation to continue growing / learning

At the time though, I didn’t understand this and was ready to do less work despite the fact I hadn’t put any money into my bank account - lots of Amazon sellers make the same mistake.

In March, I started shopping around for a prep center. A prep center is a 3PL company that processes your inventory and sends it to Amazon for you, and they are quite useful at scale. Most prep centers are based in states with no sales tax (Delaware, New Hampshire, Montana and Oregon) since you’re buying stuff from retail stores and the tax savings can offset the prep cost. I managed to land a deal with a small Mom & Pop business in Montana at a prep cost of $1.10 per unit (the industry average is $1.50-$2.00). I got incredibly lucky, as I still work with them to this day and we have a very healthy business relationship.

A prep center is a good idea when handling your own inventory takes up so much time it hinders your ability to source products. For busier people with families, it makes sense to go this route earlier rather than later. For the average seller though, I recommend doing everything in-house for as long as you can because it will save you a few thousand dollars per month and allows your inventory to move quicker - this is really big when your monthly profit is under $10,000. 

It was around this same time period I hired my first virtual assistant to help me source products. I made a job posting on onlinejobs.ph and picked what looked like a suitable candidate out of 100+ applicants. Because they claimed to have experience with product research, I let them go off on their own without any clear direction - this more or less ended up in $1,500 down the drain. 

I wasn’t getting the results I wanted, so I fired them after 3 months of subpar performance. It wasn’t until a few weeks later where I realized that it was my fault that they weren’t doing a good job, as I didn’t really train them. I would hire more VAs in the future through an agency and spend a month training each of them, which gave me much better results. Even though they do good work, I think I could have grown faster if I just spent more time leveling up my skills. It is my personal opinion that the only VA you need in this business is one for admin tasks (updating inventory software, managing spreadsheets, etc.) so you can focus on the highest ROI task in your business - sourcing profitable items.            

Q4 2022

Despite making a lot of mistakes, I still had very explosive growth throughout 2022. I was going into Q4 clearing 60-70k revenue months purely off reinvesting all my profits + abusing business credit cards. Since I had W2 income to support me at the time, I wasn’t concerned with pulling any money out (which probably wasn’t the smartest idea). 

The Q4 hype from Amazon sellers is very real - volume spikes big time and stuff sells for 50-100% more come December. This was my first real Q4, and I can confidently say I had no idea what I was doing. Despite this, I still managed to hit two 100k months back to back in November and December just because the sales volume increase is that crazy.

It was at this point I thought I’d “made it” - hitting two 15-20k net profit months, I felt on top of the world and figured that I would be able to just maintain that level going into 2023. What I failed to realize is that I hadn’t actually leveled up that much, but rather I just got boosted by the increase in sales volume Q4 usually brings. At this point though, I was at least paying myself a salary.

Plateauing in 2023 and Breaking Out

The first half of 2023 was a very slow decline. I had another 100k month in January, and then fell into a state of going through the motions. I would do W2 stuff during the day, buy items that my VAs found at night, and repeat that cycle without any sort of innovation or putting in extra effort. This is why I said that outsourcing can be dangerous - it can make you complacent.

Before I knew what hit me, I was regressing. The 100k months turned into 80k months, and then into 70k months. It didn’t hit me until I was about to end June at 62k revenue (barely higher than June 2022) and knew something needed to change. I reached out to a few people in the space (you know who are, God bless you) and asked for help getting through my slump. They all gave me some helpful advice, but what I realized in the end is that if I wanted to grow my business I needed to do the heavy lifting - no more of this “autopilot” BS. I started grinding again like I did back in the beginning of 2022, getting back into form for August.

For those unaware, August is the second most lucrative time of the year for Amazon sellers - this is because kids are going back to school and demand spikes heavily for types of items that they need for the new school year (backpacks, crayons, clothing, etc). If I was going to have a successful August, I needed to get it together. I managed to get back up to speed in July, doing around 75k in sales with capital to spend.

When August hit, I was ready. I was putting more hours into sourcing, I was spending more capital on inventory, and I was even fulfilling orders out of my own house to increase volume. Every day I went to the post office with at least 30 packages, sometimes up to 50 or 60. It was difficult doing this while keeping up with my W2, but thankfully I was working remote so I was able to make it work. By the end of the month I did 125k in revenue, a 20% increase from my best year in December - I was back.

3 weeks ago on a Wednesday morning, I woke up to 2 notifications on my phone - the first was a direct deposit from my employer. The other was an email from my bookkeeper with August’s profit and loss report. I was shocked when I read that my net income for the month was over 10x the direct deposit. Although that number was slightly padded by info product sales, it was at this point I knew I was going to make it.

That more or less brings us to today. With about 2 years of living expenses saved up, I decided to pull the trigger and go all in - I will be shooting for 200k revenue this December. I cannot express how grateful I am to be on this side of the internet, with tons of people encouraging me to push myself and continue growing. I’d like to once again thank BTB for the opportunity to write this post, and hopefully it’s inspired you to achieve something just like a certain blog did for me 2 years ago.

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BTB Notes

We’re not aware of BowTiedMahi’s old W-2 or position but as a note for those that are new, we’ll always say the same. Only quit when you’re making 2x net income online vs. your W-2. So if after taxes and everything else you’re making $100K, you can quit when you’re making $200K net income online. This is our own rule of thumb. Once you leave it is nearly impossible to go back to taking orders again.

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Disclaimer: None of this is to be deemed legal or financial advice of any kind. These are *opinions* written by an anonymous group of Ex-Wall Street Tech Bankers and software engineers who moved into affiliate marketing and e-commerce. We’re an advisor for Synapse Protocol 2022-2024E.

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