TOP 4 INVENTORY KILLERS: How to Spot Holes in Your Amazon Business Before You Fall in

TOP 4 INVENTORY KILLERS: How to Spot Holes in Your Amazon Business Before You Fall in

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The success of your Amazon FBA business depends mainly on one thing: THE STRENGTH OF YOUR INVENTORY. Therefore, before making significant investments in inventory growth, it is very important that you learn how to buy well, and sell well. Implementing a sound inventory investment strategy prepares you for all possible consequences and helps you manage risk more efficiently. So, before making any bold moves, here are 4 principles/concepts that you should be aware of when dealing with inventory buying, maintenance, or selling.

  1. Sales Rank is KING -Without meaning to be pushy, let our standards dictate most of your buying strategy: As a general rule of thumb, we won’t buy anything with a sales rank of over 100k. Actually, we are only comfortable purchasing items with sales ranks that fall under the 50k mark. The reason is simple: The lower the rank, the faster it sells. There are additional variables we look at when doing deep evaluations; such as number of variations, bestselling sizes or color, etc… We could write a whole ebook on just this topic alone, but simply put, buying poorly ranked items is going to stunt your cash flow, even if the profit per sale is very enticing.
  2. Patience, Patience, Patience – believe me, I know how antsy one can get when a red hot opportunity comes along. When I was starting out, I was quick to jump on a product that had a great sales rank and promised excellent gross margins, only to lose out in the end due to an unforeseen issue like the product being HAZMAT or restricted for sale. Go slow, check all of your metrics, and utilize of your tools before taking the plunge. You need to be quick sometimes on a great product, but you will do yourself more good by running through ALL of your checks. Some questions you should be asking yourself include: Does it meet sales rank requirements? Profit per sale requirements? ROI requirements? Is it under Hazmat review? Are we restricted from selling the brand?
  3. Go Big or Go Home! – This is why we are in business! Once you’ve found an investment that works, build on it to experience recurring payoffs. Now, building on an inventory investment requires a steady, calculated approach. First, you must determine the additional costs that go with inventory replenishment such as amount of time for submission of orders, the amount of time suppliers’ take to fulfill purchased orders, and the amount of time it takes for your products to check in at the fulfillment centers. Moreover, it is of utmost importance that you accurately calculate and monitor the required quantity of products to sell in #FBA. This required quantity is known as “Days of Coverage”. Miscalculations to your Days of Coverage can either cause immediate stockouts (too short) or increase the risk and ultimately kill the potential of your inventory investment (too long).
  4. Holding Out For a Better ROI – In our opinion, the object of the FBA business is a cash flow based game, and the quicker we get the money back, the quicker we can reinvest it. As we all learned in Finance class, the time value of money is it’s single most powerful property, and stale stagnant inventory is the antithesis of that. We might not get as high of a profit by selling now, heck, we might even take a loss, but often times getting the bad money back in your pocket to spend on better-performing inventory is the best course to take.

The moral of the story? Buy smart, be patient, and pull the plug on a bad investment as quickly as you pull the trigger on a new one.

Do you have any core tenets that you follow in regards to your inventory?