When a big company like Amazon accepts a return, it's not necessarily going to put that product back out on the shelves of its warehouse. It's not that the product is damaged or even particularly heavily used — it's just that Amazon is such a huge company that sells so many products at such thin margins that it doesn't have much incentive to go through the trouble to sort through returned stock. 

So Amazon, like Walmart and some other major retailers, sells returns pallets to auction websites that turn around and sell them to other businesses.

It's easy to see why Amazon, with its absurd economies of scale, would go sell these pallets. But why do other companies buy them? And why do these same sorts of companies buy products in liquidation, too?

As it turns out, the actions of these other companies make perfect sense, too. In fact, these companies — many of them small businesses — have found a way to make money off of the same products that companies like Amazon can't be bothered to deal with. They’re called liquidation businesses, and they’re making lots of hardworking and quick-thinking Americans impressive amounts of money.

How liquidations and returns businesses work

Here's why small businesses and other companies buy Amazon returns pallets: to sell the products they contain!

That may seem obvious, but the key to understanding the business model is realizing just how huge the discounts on Amazon return pallets can be. These are returned products being sold in bulk. Amazon isn't being super careful about what price it gets for these, and the auction systems allow savvy bidders to make off with enormous deals.

And once the products are in the hands of the small business or other company, that business' leaders can start figuring out how to sell those products for a profit.

Buying things in bulk and then selling them off individually is already a proven way to make a profit. That's just how economies of scale work, and it has been a big part of how retail has worked throughout history. But when you're talking about returns products that were sold for even less than they were worth wholesale, your potential profits get much, much bigger.

Returns and liquidations businesses can sell returns and B-stock online through various marketplaces. They may even be able to do so on Amazon itself.

It’s an exciting way to make a living, too, because it’s not always clear what a given pallet will contain. Some finds can be particularly lucrative.

Maximizing profits

Of course, liquidation businesses aren't foolproof moneymakers. Leaders of these businesses can and should do certain things to make their businesses as efficient and as profitable as possible.

Returns and liquidations business owners will have to have proper storage and shipping solutions set up, and they need to be careful not to invest in too many products at once and outstrip their own capacity to store, sell, and ship the goods. Of course, this doesn’t mean that you can’t start your business in your own garage — plenty of returns and liquidations business owners do just that. It just means that you need a system for keeping track for how much space you have and a system for organizing your inventory within that space.

It's also a good idea for liquidation businesses to specialize in certain types of products, particularly early on. Being more familiar with a certain product or family of products will help you identify good selling pricing and good deals on liquidation products, and it will decrease the odds that you make a costly mistake.