Probably the number one concern I hear from new sellers is “I can’t find any good inventory!” They’ve gone to a store or two, scanned and walked away with nothing. They are frustrated because they know other sellers are shopping the same stores and finding stuff. Or maybe they are buying stuff but it isn’t selling and they are frustrated because all their money is tied up in inventory. They are discovering that, much like real estate, your money is made pretty much at the point of sale. It is hard to redeem poor purchases later.
They want to know, what is the trick? What am I not getting? This is a hard question to answer definitively because it varies. Sometimes, they are doing nothing wrong, per se, they are just impatient or had other expectations for their business. Over time, however, I’ve seen some commonalities. I’m calling these the Five R’s: Rank, Risk, Reward, Repetition and Research. If you are struggling with what to buy, see if any of these potential problem areas sound like you:
Rank
Rank is by far one of the hardest things for a newcomer to understand. On the one hand more experienced sellers say “it is a snapshot in time and only an indicator,” and on the other we say “rank is the first thing I look at.” Rank tells me that something has sold on Amazon.com at least once. This provides comfort that it might sell again. If the rank is really high, then it has been a long time since it last sold. That’s the snapshot part. There may be different reasons for this:
1) Not a popular item;
2) No units for sale or
3) Not priced competitively.
Reasons two and three offer us an opportunity. I will often buy a higher ranking item if it is sold out reasoning that my unit might be quite welcome on Amazon and will likely not have competition (yay!). If I can make my margin at a lower, more competitive price that is an opportunity if I think everyone else is overpriced.
If something is low rank, then it is selling more frequently which assures me that I can turn my money faster. In my classes, private sessions and in my book I share some rank ranges that I use as guidelines for when I’m shopping. With new shoppers I am conservative because I want them to experience inventory turnover and get some money going. How did I acquire my ranges? I experimented. I would try things at increasingly higher ranks and see how long they took to sell. I would use inexpensive items I bought at thrift stores, estate sales, etc. as my experiments. Over time, I got comfortable within a range and would generally stick with it. Rank for me is my first test as to whether or not I should buy something – but it is not the only one. If the rank is within my range, I’ll look to other factors like is Amazon selling it? Are there a lot of other sellers? Are the prices overall good for my margins? While it is OK to have high ranking items in your inventory, make sure that they are the outliers and not the bulk of your inventory. It is great to have a long-tail sale that nets you big bucks when it sells – but that could be months or even years from now. You need stuff that is selling every day and making margin for you.
Risk
When I buy an item with a high rank or no rank, I am taking a risk. Every time I add a new product to Amazon’s catalog I’m taking a risk. If there are zero other sellers, for example, I might think my item is super-cool, but maybe no one else does. The first time I bought a Harley Davidson comforter set, the rank was over a million (!) in bedding and there were no sellers. They cost me $25 and I sent in three priced at $125. They sold in less than a week. I then went to every BigLots in the Dallas area and bought all I could find.
I sent them in the first time because I had faith in the Harley Davidson brand and that I would ultimately sell my comforters. Other things I’ve sent in that I thought were adorable took months and months to sell even one unit. Witness the Disney Tinkerbell erasers I bought last August – I just sold my first one last week, alas. Hopefully I’ll sell the other 13 before long-term storage fees. At least they are small and storage is cheap.
Sometimes the problem I see with a seller’s inventory is that there is too much risk in the mix. The seller may be more of a gambler than a business owner. Every successful business owner I know does not like to gamble. They only go to Las Vegas for conferences because they think it is ridiculous to throw money away on a rigged game. Or, they have a pre-set gambling limit and they stick to it. Most of us don’t buy lottery tickets either. If this concept is incomprehensible to you, now is the time for some self-reflection. An addictive, adrenaline-fueled personality will show up in a seller’s inventory in a bad way with lots of risky buying decisions. The potential reward may be terrific, but the chances of success small.
What, then, is the difference between Risk and Gambling? Acceptable risk has safeguards built in and relies on experience and patience rather than luck. Acceptable risk is boring, calm and steady. While all sellers get lucky sometimes with awesome deals, we don’t build our businesses on chance. Most of our business is “bread and butter” type purchases that have ranks in our range, a good margin, and not too much FBA or Amazon competition to torpedo our margins. The “home runs” are fun, but we win the game with steady base gains (I so rarely use sports analogies). If we spend money on riskier inventory with high rank – or even no rank if it is a product you are adding to the catalog – then we balance it with other, proven inventory. We know when we buy that we may never make our margin on this risky item and it is acceptable because this item is an outlier in our inventory and not the bulk of our inventory.
Acceptable risks means setting limits on yourself – keeping within your budget, not overextending, scanning patiently until you DO find that great deal, not putting all your inventory dollars for the month into one purchase.
Over time, finding good inventory becomes easier and easier because you are experienced. Things that seemed risky a few months ago are now part of your regular purchases because they’ve proven themselves. You also have a greater bulk of good selling inventory so adding more experiments affects you less and less – kind of like seller feedback on Amazon.
A lot of people start like I did with very little money to spend on inventory. I tell them to start with books, video games and collectible games primarily. Why? Because they are easy-to-find, cheap and the risk is low. It is like giving a teenager a car. I’m of the “old beater” school of thought because I know my son is going to make mistakes and quite possibly damage his car while he is learning. I’d rather he make those mistakes in a cheap old beater (with good seatbelts!) so he will have greater success later when he can afford a more expensive car. If a book never sells and you spent $2 on it (plus storage fees), that’s not a big deal. If an appliance never sells and you spent $75 on it…that might be more painful. Especially in the beginning when your inventory dollars are tight.
Lastly, if you have ever gotten into financial difficulties in the past because of gambling or compulsive shopping – this business is not for you. It will only feed into your problem. Some people I’ve talked with on the phone I can tell by the words they use and how they talk that they are gamblers or compulsive shoppers. I am saying here what I don’t feel comfortable saying to a stranger on the phone – be honest with yourself. Don’t do this business until you get a handle on why you gamble/spend.
Reward
I personally advocate spreading the risk in the beginning which is why I like books and inexpensive items mixed in with other inventory. This is a slower growth plan, though, and some people want to buy the high reward items right from the beginning. Their reasoning is “if I’m going to spend $75, I’d rather buy one appliance/toy/whatever and make $100 off of it in a few weeks rather than 75 items for $1 and eventually make $150 off of it over time.” This is great if the item actually sells in a few weeks, but you can’t count on that.
Or they may think “I’ve got to make BIG MONEY, right now!” I call this the Wheel of Fortune school of thought. It is a lot like
gambling to me and there’s that “bankrupt” slot that gets sellers all the time who try to fly too far, too fast, and tie up money in inventory that they can’t get out right away. Late last summer I reviewed someone’s inventory that was full of high dollar items. They weren’t moving at all because they were the kind of items that people don’t buy that often and/or were the kind that are often given as gifts. I told her that they would sell over the holidays and that I thought they were all great items. Because she needed to make money in the meantime, I talked to her about taking what few dollars she had left and buying books and collectible games.
In addition to buying lots of high dollar/high reward items, another issue I often see is not enough margin. This frequently comes from either not understanding Amazon’s fees or from not understanding their other costs. I’ve seen some sellers working themselves to bankruptcy because they didn’t understand what kinds of margins they need to make.
When I buy something, I fully expect to sell it for a price such that I will double my money – at a minimum. Because Amazon fees vary based on size, weight, etc. and because my costs may vary on these same factors, I look at the “net” on my scanner as a starting point. I add in my projected out-of-pocket business costs and figure out for how much I need to sell that item. If it seems reasonable that I can sell it for that price in a timely way based on the other sellers, I buy it. To be clear, if I’m spending $10, I expect to make at least $10 after I deduct all my expenses (including my initial purchase cost).
I get lots of questions about the exceptions to this rule like “what if it is selling fast? Would you lower your margin requirement?” The answer is I might, you shouldn’t. What the…? Here’s the deal, no purchase is made in a vacuum. It is made in the context of all your other inventory. That margin not only has to reward you for what you invested in it, it also has to cover returns and losses.
The fact of the matter is Amazon will lose stuff, customers will return stuff and lie about why, sometimes your great deal will be torpedoed because Amazon will drop its prices to dizzying lows, other sellers will race to the bottom and have zillions of units to sell before you can sell yours or you will be forced to lower your prices and take a smaller margin. You will have storage fees and on and on and on. It is part of the business. So can you have items in your inventory that are only making you $5 for every $10 you spend and make money on volume? Sure. A few items like that in the context of a much larger well-performing inventory base are perfectly fine. But most new sellers don’t have that yet so I advise them to put that item down for now and keep looking for a better margin.
Repetition
You have to scan a lot. Many new sellers aren’t finding stuff because they aren’t scanning enough. I recently went with a friend to a book sale for a couple of hours. I walked out with four large bags of books (about 50-60 books). She walked out with seven books. I scanned several hundred books in that time. Because her Scanfob wasn’t working that day, she had to use her phone camera to capture the barcodes. I felt my two hours was well spent. She did not. She scanned a fraction of the books I did. It was a bummer. The next time she goes, it will be a much better experience.
When someone tells me they are scanning a lot and not finding anything, I ask them what they mean by “a lot” and frankly it usually isn’t. They are not moving fast and they are not scanning often enough. If you spend a few hours somewhere, you should have scanned hundreds of items. I ask about how many scans they did (your SerialMagic Gears will tell you if you have Android) and it is very low.
You need to scan, repeat, scan, repeat, scan, repeat, scan, repeat until you are in this lovely Zen state called Flow where you are 100% personally efficient and effective…where you feel calm and fulfilled at your task. It may take a lot of practice.
Especially in the beginning you have to scan like crazy. Most of the time the answer will be “no” and you are scanning fast to get to the “yes.” During this time you will not only be developing your patience muscles, you will also be learning about the types of items that are likely to be good candidates.
When I go to a store now, there are whole categories and types of products I avoid there because I already know they are unlikely to bear fruit for me. There are also brands that are either restricted or practically impossible because they have their own store on Amazon. I will go to the most likely items first which makes me more effective. This is what you learn from experience. You can be more successful in less time. There is no way to circumvent this learning curve so plan to spend hours and hours in the beginning scanning stores.
You should also scan a lot of different stores. I had to wean a client off of his Target habit. He found great things there, but on the days when there wasn’t much, he didn’t have anywhere else to turn to for inventory and his sales would slow as his pipeline narrowed. Or, even worse, he would buy “Just OK,” so-so and bad deals because he felt he had to walk out of the store with something to show for his time – don’t do this! Jim Collins has it right when he says Good is the enemy of Great. By broadening his horizons and getting him to scan other stores as well, he now has choices and places to go when one store is a bust.
Research
Tools matter. At the book sale, the difference was dramatic. We both had ScanPower, but my friend’s ScanFob wasn’t working. We were using the same scouting criteria and we were the only scanners in the room during “members only” night. While many people cannot afford ScanPower and ScanFob in the beginning, I tell them to make those tools one of their early purchases after they’ve made some money. This example is why. You can do more in less time. Also, the quality of the data is important.
With changes at Amazon, our scanners now are showing us the most competitive offers according to Amazon – and not necessarily all of the offers. This means that if you see something promising, you need to click through to Amazon’s site to see it more completely and make sure that there aren’t other offers that would make your deal less exciting. This adds time to the process which is a bummer but – as I mentioned before – most of the time the answer is “no” which you can usually tell from rank, Amazon’s price, etc., without having to do research.
For items with no offers or where you feel the offer is too high, you may need to do extra research through the “Hot List” of research sites. ScanPower includes direct links to eBay completed, Google UPC and other sites in its product. This is a neat feature because the UPC/ASIN is already filled in for you and you click right to the answer instead of trying to type on your smartphone screen. Other scanning tools may require you to type in the URLs into your browser.
I saw a product yesterday that was ranked a bit on the high side, but had no sellers. When I checked www.camelcamelcamel.com, I saw that Amazon normally sold that product for $79.99. I assumed that it would have a lower rank normally if there was product in stock. The item was so cheap, I knew my clients could easily charge less than Amazon and still make their margins. I told them to buy it.
When people ask me “Do I have to buy ScanPower Mobile?” or “Do I have to have a ScanFob Bluetooth scanner?” I tell them no…BUT they’ll want to as soon as they can afford it. Acquiring high producing inventory is the most important part of our business – you want to be as efficient and accurate as possible.
Remember the difference between me and my friend at the book sale? I also took my son with me to a book sale this weekend. He had to spend time examining each scan and looking at the cheat sheet I gave him – he’s still new to this. However, he walked out with nearly 40 books to my 67 in a two hour period. He had the tools.
“Rogers”
It was a stretch to find the “R” for this last thought so it is technically not part of my “5 Rs”: you have to be willing to make mistakes and learn from them. Perfectionists will find this business frustrating because there are so many variables beyond your control and because you will make mistakes. Try to manage your risks such that your mistakes when you make them will not affect your overall business too much. In past blogs and my book I’ve talked about mistakes that I’ve made that hopefully you can avoid.
As an experienced business owner of 20+ years, I knew I would make mistakes and I planned for them the best I could by spreading my risk and not spending too much in any one type of inventory purchase. I originally didn’t use credit so I couldn’t get overextended (Last year I tried Amazon’s Lending Program and Kabbage). I also read avidly and learn from fellow sellers on their blogs and in their books.
Several years in and I am still learning and growing. I still make mistakes sometimes (anyone want about 20 Spiderman action figures? Just kidding – I’m donating them to charity) and I have yet to figure out how to make good wholesale decisions – all my experiments have been failures so far.
I’m always fascinated by other sellers’ stories and what I’ve noticed is that most made mistakes early on that helped them ultimately be a better seller. Sometimes when someone posts their numbers or gives a short synopsis of their story, it can appear that they magically started FBA and made zillions. Bibbidi-bobbidi-boo! John Groleau is a good example of this. He has realized tremendous sales numbers selling FBA in a short time. He is an inspiration to me. When you read his book, however, you realize that he had years of online and other sales experience before he ever tried FBA. He made mistakes and learned from them years ago when McDonald’s was putting Beanie Babies in its Happy Meals. [If you don’t remember the fist fights and fury…you are young, my friend!] He also had years of relationship building that has helped him in his FBA business. In short, he paid his dues. His fairy godmother was not around to help!
Be kind and compassionate with yourself when you make mistakes. Look at them as a sign that you are actually doing something right – you are taking action to build a business – and see what lesson you can take away for next time. If you have a lot of mistakes in your inventory right now but you’ve learned from them, then they were simply a necessary part of your business growth. It will get better. Will Rogers had it right.
Do you have additional advice you would share with new sellers? Please leave a comment below! Happy scouting!
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