Using Prep Centers
Scaling your business and saving time.
Welcome back! I’m currently writing the draft of this post while on a plane, coming back home after a week long vacation. While it was nice to relax with some friends and enjoy myself, it’s time to ramp things up. I’ve been slacking a bit on the content as of recently, but I’ll try my best to post at least once a week going forward (until I feel like I’ve run out of topics but I don’t think we’re near that point). This post will talk about prep centers, how they work, and if you should use one for your arbitrage business.
What’s a Prep Center?
Simply put, a prep center is a place where a person or company will prep your inventory and send it to Amazon’s fulfillment centers for you. You purchase the item, add it to your inventory, throw it on a spreadsheet for them to see, and they do the rest. Most prep centers charge per item, allowing you to use their services only when needed and not locking you into a monthly rate like other services / software. Prep centers are incredibly useful for someone that doesn’t have a lot of time to work on their second income stream, or just wants to scale their business in general. While this sounds great at face value, there are some things you have to keep in mind when deciding to use a prep center.
As I mentioned previously, most prep centers will charge fees per individual item and some will ask you to pay a deposit up front (I paid $25 for mine). The cost of using a prep center can either be really great or really annoying depending on what type of items you’re selling. When I first started my transition from books to arbitrage, I was doing a lot of high volume, low margin grocery items that would not be viable with a prep center. For example, let’s say that a prep center charges $1 per item and $1.50 per bundle. If I bought something for $5 and sold it to make a $1.50 profit, the prep fee would cut too deep into my margins. On the flip side, if your prep center is based in a state with no sales tax and you’re frequently buying items in the $25-$40 range you might actually be saving money by paying a prep fee instead of sales tax. Just for a proof of concept, here are some prices for a prep center in Montana:
Should You Use A Prep Center?
Like many things, whether you should use a prep center mostly depends on your situation, your business model, and your preferences. There are a decent amount of people on reselling twitter who are hitting six figures from hustling and doing everything themselves, so if that’s your style then feel free to keep doing what you’re doing. However, I imagine most of the readers of this stack are also balancing a 9-5 or want to eventually run multiple business (I’m in both categories right now). If you’re looking to scale this business and want to be efficient with your time, I’d recommend that you start looking into a prep center when you start sending in more than a few hundred units per month. While it might sting to have to pay a $500 bill every month, the time you save can allow you to work on other aspects of your business, another business, or even just get some extra time back for yourself. I still have a few high volume grocery replens that I’ll order to my house and prep myself since they aren’t profitable with prep fees so it’s not like you have to order everything to the prep center. I recommend at least looking into it once you start to do some real volume.
A Minor Downside
One small issue I’ve encountered with using a prep center is that I can’t order from certain stores. Some retailers will cancel your orders if the billing / shipping address don’t match, which means if they’re actually verifying the address attached to your credit card you won’t be able to ship things to your prep center.
A few popular retail stores (e.g Target and PetSmart) won’t ship to commercial addresses at all, so if your prep center is based in a warehouse you’ll probably have to prep items from those stores yourself. You can always ask your prep center if they offer a residential address you can send items to as I’ve heard from others that some of them offer this. My prep center is based at a residential address so I don’t have this issue, but it’s something to keep in mind when choosing one.
How to Choose A Prep Center
For those of you who want to do some research, I was able to find my prep center by contacting people on this list. While a lot of the people I messaged weren’t taking any new clients at the time, I was able to get some referrals from them and that’s how I found my current prep center. There are three things to consider when choosing a prep center - location, cost, and communication.
I recommend you choose a prep center in either a state with no sales tax, or the state you live in. Just as a reminder, the states with no sales tax are Delaware, Montana, New Hampshire, and Oregon (Alaska too but to my knowledge there aren’t any prep centers there). The reason you want to do this is because not paying sales tax will reduce your buy cost and allow you to price your items more competitively without losing money. The reason you might want to work with a prep center in your own state is because you can get a resale permit which will allow you to purchase items tax free from a decent amount of stores, Walmart being the biggest example. If you can get a good rate with a prep center in your own state (less than $1 per item) and get a resale permit, it might make sense to go with them.
There’s not that much variance in fees between prep centers (usually between $1-$2 for tax free ones), but I still recommend shopping around for the best deal. If you plan on doing a lot of volume, look into prep centers that will offer you a discount for sending in a larger amount of units.
This one is hard to know without actually doing business with them, but I highly recommend working with someone who will communicate with you frequently. The lady who runs the prep center I use is awesome because she’ll always email me if there’s any sort of issue with my orders (damage, wrong quantity, etc.) and ask if I’d like to make returns. You definitely don’t want to work with someone who takes a long time to respond to messages.