One of the issues that my readers talk to me about the most is inventory. Either they are having trouble finding good inventory at various retail outlets or they have inventory up at Amazon that isn’t selling which is frustrating, or their stuff is selling but their margins aren’t great and so their perception is that they are not making any money.
At heart, all inventory questions are about money, the lifeblood of our business.
Based on my own inventory and those folks who have shared theirs with me like my Dad or my consulting clients, I’ve seen some basic patterns that, when addressed, can make a big difference:
- Not charging enough/pricing enough – in other words, perhaps you could charge three times your cost or greater, but you’re not because you think you have to be the lowest seller or you’re afraid to price the items higher. Or maybe you don’t buy a particular item because you don’t think you can get your margin on this item because of 1 or 2 lowball sellers. This is very common.
New sellers need to be willing to experiment to find out how high to go. When you are deciding what to buy, don’t just look at the lowest price, look at all the FBA sellers and see if you might make your margin if you were the second or third-lowest seller. There are plenty of FBA sellers who are poor pricers. You don’t have to follow their lead.
What most of my readers don’t realize is that the majority of FBA sellers do NOT use tools like Scan Power/Scout (formerly FBA Power) or one of the other tools out there to help them make smart buying decisions. They aren’t aware of the exact Amazon fee for that item (unless they are good at calculations in their heads) and that accounts for a lot of the crazy mistakes you see out there where people are selling items for cost. Some also use their repricer poorly and undercut themselves, but that’s another blog post.
In terms of pricing, I rarely price my items as the lowest. I am more likely to match the lowest competitor (or round up to the nearest .95 or .99). I do this because I don’t want to spark a pricing war with their repricer – a “race to the bottom,” nor do I want to give up any revenue if I don’t have to. When someone comes out and sees both of us at the same price and same condition, they will then make their decision based on other factors. Maybe my customer satisfaction rating is higher, maybe my description is better. Maybe they like my logo. The point is, there is more than one way to compete and price is my last resort not my first choice. I want to make as much per item as I can!
If you are the only FBA seller, go a bit higher than the highest merchant seller (within reason – look at all the prices to see if the highest is reasonable or crazy).
If there are other FBA sellers, check out how many units they have and how quickly the merchandise seems to be selling. While rank is only a snapshot in time, it can be helpful. If you have an item at a low rank that means it has probably sold several units recently. Given that, you might be willing to price a little higher than the lowest and wait for the second or third buyer.
Remember, your target buyer is the Amazon Prime buyer who is looking for free, fast shipping and willing to pay a bit more to have it NOW versus a week from now. As an Amazon Prime buyer myself, I know what I’m talking about here.
- Need new sources of inventory – it may be that in your part of the country the prices are higher at Tuesday Morning, Big Lots, etc. and you need to find other sources of inventory outside the big box stores. One of my readers on the East Coast sent me his flyer from Big Lots and I compared it to mine. Many of the items were the same, but some were different. Prices on the same items were the same, but that doesn’t mean that other prices inside the store weren’t significantly higher or lower. Flyers are designed to bring people in and represent the best prices. I always look at flyers, but I scan other things once I’m in the store.
I’ve had great luck at tiny discount stores, thrift stores, estate sales, etc. My friend Lynn still shops at Target and Walmart a lot, but she also does thrift stores. In addition, there are stores in her area that aren’t in other parts of the country. Their prices are better than BigLots and I’m jealous. Chris Green finds deals at Home Depot and Sam’s Club and Costco, so you might want to broaden your inventory into different categories as well or make some bulk purchases that you can break out into smaller items for sale.
- Timing – All the retail stores are getting in or about to get in their holiday inventory. You may find more and better stuff now than in the summer. Also, summer stuff is on deep discount (if not already gone) which is a great time to buy. Believe it or not, I sell water toys all year round to people in the South so don’t assume that because it is winter everywhere else you can’t sell that special baby floater with 50+ shade protection. Halloween stuff will go on sale November 1 and costumes sell year-round in the toy category.
- Specials – you may need to focus on sales, discounts and special shopper programs to get the best out of your local stores. My Dad shops Toys R Us a lot but he uses coupons, sales and TRU special programs aggressively in order to get his margins. He does a lot of “shopping” and planning before he goes to the store with the catalog and sales flyers. Tuesday Morning has sales a couple of times a year with items as much as 95% off – you want to focus on those yellow ticket sales if you’re not finding good inventory at regular prices.
- Consider some higher priced items – I like to buy for $5 and sell for $15 or some variation of the “3X” rule of thumb, but there is a lot more wiggle room with an item that is selling for $100 vs. one that sells for $15 in terms of margin. If you can buy something for $40 and sell for around $100 (assuming it is not too huge and heavy to ship), that’s still a good chunk of change in your pocket. I sold a lot of appliances last year this way. I got 3-4X on many of them, but some I ended up discounting down to 2X and still pocketed a profit. The trick is to make sure these are fast-selling items so you are not stuck with a lot of cash sunk in inventory. I was amazed at how fast appliances sell around Christmas so think about coffee makers and crockpots while you are out there scanning.
By the way, I got most of my appliances at Big Lots so be sure you are looking all around the store when you are there. Tuesday Morning and Marshall’s all sell appliances as well as a range of luxury goods. These stores, like Big Lots, tend to deal in overstocks so once an item is gone, it is gone. I regret now not keeping one of the pressure cookers from last year for myself. It was such a great deal. Some stores will offer certain goods seasonally like Home Depot and Lowe’s. Sears and JC Penney’s are always selling stuff on sale, but especially around Christmas. I’ve also found appliances and other gift items new in box in thrift stores, at estate sales, etc., so keep an eye out.
One of the first questions I ask someone whose inventory isn’t selling very fast is when was the last time they repriced their inventory and are they buying inventory with decent rankings? While there are around 15 million books on Amazon, the other categories are much smaller. A book with a rank of 1 million will generally sell fairly quickly – say within three months on average. A toy that is under 100,000 around Christmas will sell within a few weeks. After Christmas it will take longer.
As I point out in my book, I’ve learned by trial, error and experimentation and I recommend all new sellers do the same. If you buy an item for $20 that sells for $125 but is a high rank, make a note of when it sells. Generally, a margin like that is worth waiting a few months for. If it takes a year, you may not want to buy at that ranking unless the return is much higher…but that’s a personal decision. I just sold a toy for $175 that I bought for around $50 last Christmas. It took this long to sell because a lot of other people jumped in and were selling it for ridiculously low prices around $100. I was willing to wait until I could get my price because I have lots of other items that are selling for me on any given day. Another seller may have decided to cut prices and move on. Which is the right approach? Both. Neither. It depends on you and your business.
As a small, part-time seller on Amazon, time is on my side. I need a business that can tootle along when I’m busy and that will respond well when I give it attention, but not disappear when I can’t. I am more likely to wait. Other sellers who rely on their Amazon business as their sole source of income will often be more aggressive about pricing. They have monthly totals they must hit in order to pay their bills.
While it is normal to occasionally take a loss on an item, be careful not to discount yourself so severely and so often that you lose profit. In my book and earlier on this blog I gave a spreadsheet that I use as a model to help me understand what my “floor” is and when I start to take a loss. You need to know these numbers for yourself. Your costs must include not only Amazon’s fees, but your costs to run your business, buy boxes and tape, pay sales tax, etc. If you don’t, you’ll lose money while making sales and not know why.
Have you learned something about inventory or sales that you’d like to share? Please leave a comment below!