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By Nate McCallister / a couple of months ago
Amazon Liquidation

There are several ways to find (or "source") products to sell on Amazon and eBay. One of those methods is sourcing from liquidation sales or dealers (liquidation sourcing). 

In this article, I'll explain...

  • Why I don't recommend liquidation for Amazon or eBay sellers
  • How to protect yourself if you don't take my advice and still insist on selling liquidation
  • Which methods I recommend instead (listed in a fun, but surely controversial order)

Before I get ahead of myself, let me explain really quickly what I mean when I refer to "liquidation sourcing."

What Is Liquidation Sourcing?

"Liquidation sourcing" refers to buying discounted inventory for resale from companies (or 3rd party middlemen called "liquidators") that are looking to turn inventory back into capital quickly.  

There are a number of reasons a company would do this and it isn't always because they're going out of business.  Liquidation might include goods that were returned, damaged, going out of season, overstock, discontinued, expiring or even recalled (yikes!)

Since the products are sold "as is" and (typically) in bulk (often by the pallet and by weight/category), they are always steeply discounted. The reason Amazon and eBay sellers are drawn to this isn't surprising at all. The liquidation prices are often less than the price online so there is plenty of margin in flipping the products. 

"For the love of God, liquidation is NOT the same as wholesale."

Liquidation FEELS like wholesale and there is a much lower "barrier to entry" than there is when sourcing wholesale. This is because liquidators and companies liquidating their own inventory will typically sell to just about anyone with money whereas wholesalers do much more vetting of any company looking to work with them and buy their products. 

Liquidation Sourcing

"Liquidators can't be choosers," could and should be a saying.  

For the love of God, liquidation is NOT the same as wholesale. At all...The only similarity is that the products might arrive on pallets. That's it.

Wholesale = Sustainable and scalable 

Liquidation = Not scalable because it almost always leads to suspensions.

Wholesale is my most recommended method of sourcing and liquidation is my second to last recommended method, behind stealing from pawn shops.

I'm joking of course, but seriously, it is my least recommended method of product sourcing.

Why Liquidation Sourcing Is Risky 

I'm being harsh on liquidation sourcing so far so it's only fair I explain why finally. 

Reason #1 Product Quality Concerns 

Liquidation goods can be off quality for a number of reasons. 

First, the liquidators are not likely to care about the quality of the goods anymore ESPECIALLY the ones in boxes. This isn't of course always the case, but its absolutely a reasonable assumption to make and at scale, you're bound to experience some very neglected and haphazardly handled products. 

You may be thinking, " Well if it's broken or damaged, I just won't buy it! Problem solved!"

Yes, you absolutely shouldn't buy products that you see are damaged, but it's difficult to tell what the full story is on each item. 

I have seen on countless occasions sellers receive "incomplete" or "wrong item" complaints when they were certain the product was as described.

While I am well aware than many customer complaints are in fact exaggerations, misunderstandings, issues in shipping (not the seller) or just flat out lies, I'd be lying if I said I didn't notice that liquidators and thrifters were getting far more of these complaints than their peers who purchase the products from wholesalers or more legitimate sources NOT as liquidation lots.

When you get a pallet of liquidation goods or receive hundreds at a time, stacked on top of each other, outside of the original factory seal and wrapping, it's difficult to really know if something has possible issues. 

How do you know if a product is not functioning or maybe covered in blood because it was used in a murder unless you opened the box and checked (kidding again, seeing if you're awake).

So that brings me to my first tip.

Tip #1 If You INSIST on Liquidation Sourcing

Inspect the crap out of every product you list

No matter what you're told about a lot, only trust what you see with your own eyes. Once you have a good reputation built with a liquidator and you're 100% certain you're getting grade A products (no repackaged crap) you can begin to let your guard down a little. 

After all, it's difficult to scale if you're paranoid about every single item you sell. With liquidation, I've seen enough seller's suspended to know that paranoia is absolutely merited. 

So, if you're properly inspecting all your packages, you're inevitably going to find some off quality products. What do you do with them? 

There are many levels of "off quality" and Amazon draws the line at "Used-Acceptable" which is defined as:

Amazon Used Acceptable

Side Note: I highly recommend you brush up on the Amazon Condition Guidelines after you read this article.

The problem with selling products as "Used-Acceptable" is that they are often slow moving and obviously, priced lower!

This means there is a real temptation to fudge the listing and exaggerate the quality of the product in order to make a little more, a little sooner. 

Never overestimate the quality of your products! ALWAYS underestimate. This is your business, don't risk it over the occasional extra few dollars here and there.

Personally, "Used-Acceptable" is also risky because buyers might forget they didn't get brand new quality and might still make complaints that will hold just as much weight as if you listed the item brand new. 

For this reason, I believe that most products that would be listed as "Used-Acceptable" are much better suited for being listed on eBay. 

Tip #2 If You INSIST on Liquidation Sourcing

Off quality goods go on eBay with CLEAR and ACCURATE descriptions, not Amazon 

The reason eBay is a better option is because it gives you the flexibility to add images showing the exact condition your product is in whereas Amazon doesn't allow you to add pictures of your specific condition of the item listed.

You could basically sell a turd on Amazon as long as you don't describe it as a meatball sub on the listing. I'm kidding, but you get the point. 

Clarity and honesty are king and eBay allows you more flexibility to do that compared to Amazon. Also, eBay isn't as quick with their version of the ban hammer like Amazon is so that's a plus as well. 

Reason #2 No Paper Trail to Defend Yourself

Like I said earlier, I understand that many customer complaints are exaggerations, misunderstandings or even flat out lies to get free shipping. 

Legitimate or not, Amazon adopts a "guilty until proven innocent," policy when it comes to quality concerns and especially authenticity concerns. 

What happens when you get one of these complaints and Amazon shuts down your account? They ask for invoices showing where you got that specific item

Most liquidators offer generic invoices that don't provide a good itemization of the products included and even more rarely have the products listed on an invoice with UPCs. 

This is a big problem. 

Tip #3 If You INSIST on Liquidation Sourcing

Try to get itemized invoices 

Regardless of what you've been told, Amazon doesn't really like liquidators and when your invoices clearly show that you're sourcing from one, it isn't a good look.

Not a death kneel, but just not a great look. 

Here is another random tip before I forget to add it...

Tip #4 If You INSIST on Liquidation Sourcing

Don't put "liquidator" in your store name

I was actually inspired to write this article after reading an article on CNBC.com about a company that was suspended. Their name ... Cheapskate Liquidators. 

Here they are.

Amazon Suspension

Side note, notice the damaged packages in the picture? It's the little things that add up, folks. 

Reason #3 Often Less Profitable Than Expected

Each liquidator or liquidation sale you buy from is different but many of them make it difficult to see exactly what you're getting. 

Pallets may be labeled as "electronics" or "power tools." When you start cracking into the haul, you may notice things like the fact the product has no listing, an extremely low price after fees, etc. 

Just because something is "cheap" doesn't mean it's profitable.

This is one of the reasons I don't recommend you source wholesale, at least not 100%. 

Tip #5 If You INSIST on Liquidation Sourcing

Don't source 100% liquidation

If you find the occasional liquidation sale that has great products, itemized invoices etc. by all means, knock yourself out BUT don't put horse blinders on and only search for liquidation deals. 

There is some cream, but there is a lot of crap and if you spend 100% of your energy and time in liquidation, you'll inevitably buy some crap in an effort to scale. 

I do think most people who sell strictly from liquidation lots will get suspended eventually. I also believe that most of them will also get reinstated, but the process is a pain in the butt and can take a lot of time if you don't know what you're doing. And you don't, why would you?

So my final tip...

Tip #6 If You INSIST on Liquidation Sourcing

Set aside $2,000 for when you get suspended

Other Product Sourcing Models

Ok, I'm done bashing on liquidation. 

If you're a liquidator or source from one, please don't take this as a dig at your business. Also, if you're a liquidator, consider these safer alternatives to liquidation. 

1. Direct from Retail Sourcing

It doesn't get much better than buying the product straight from the source. Suspensions are nearly impossible and in the event that you do get suspended for an inauthentic claim, you'll have a perfect invoice to provide to prove that you're right and the customer is wrong 🙂 

The only downside to this is lower margins but the plus side you can get extremely popular products that sell quickly and have large companies spending a fortune marketing them FOR YOU. 

Also, many brands are gated to other sellers so if you get a direct source and direct brand approval, you can crush them. 

2. Wholesale Sourcing

The difference between wholesale sourcing and direct from retail sourcing is the middle man, the wholesaler who purchases items, warehouses them and sells them for others to resell. Manufacturers benefit from wholesale companies storing their products. They are also able to optimize their shipping by selling to wholesalers across the country or world instead of shipping from one or few centralized locations. Wholesalers then resell to other companies who have storefronts to move the products for them. Wholesalers typically don't worry about having a "front of shop" presence since they can sell to companies that do and capitalize on economies of scale (smaller margins but large orders).

Remember, wholesale is NOT the same as liquidation. Wholesale is much more reliable and the goods you receive will have a paper trail DIRECTLY to the manufacturer. 

#3 Online Arbitrage

This is my personal favorite sourcing method even though it lacks the scalability of wholesale and direct from retail sourcing. 

Why? Online arbitrage is convenient. You can do it literally from anywhere. If you incorporate a 3rd party prep and ship company, you don't even have to see the products! 

Also, tools for online arbitrage exist that make the process easier than ever. Tools like Tactical Arbitrage have made it easy for almost anyone to find products to sell on Amazon. 

#4 Retail Arbitrage

Retail arbitrage was the first sourcing method I ever tried and it worked well. It is very hands on and requires you to do a lot of driving and scanning but the products and profits are there. Scalability is the only issue but you can still make a very healthy living with retail arbitrage. 

#5 Private Label

Private label is the process of creating your own products and selling them on Amazon. Typically, these are not original and groundbreaking invention type products but rather "me too," sorts of things (kitchen supplies, pet supplies, garlic presses) that have profit potential if you can rank high on Amazon for them. 

This isn't an easy method or I might have had it ranked over arbitrage. There are some great tools like Jungle Scout and AliExtractor that make finding profitable products to bring to market much easier. 

#6 Thrifting (Not Recommended for Amazon)

I recommend thrifting for eBay and other marketplaces, not Amazon. The only products I'd really consider selling on Amazon that were from a thrift store would be books or the occasional RARE sealed item that is with out a doubt unopened. 

#7 Garage Sales (Not Recommended for Amazon) 

A garage sale is just dumpster diving a day early. Just kidding...Again though, I wouldn't sell anything from a garage sale on Amazon except the rare unopened, factory sealed product someone happened to have as a gift they never opened or books (which you wouldn't sell in brand new condition of course).

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About the author

Nate McCallister

Nate is the founder and main contributor of EntreResource.com. He is a lifestyle entrepreneur who spends his time building businesses and raising his two kids Sawyer and Brooks with his beautiful wife Emily. His main interests include copywriting, economics and piano.

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