How to know what to buy to make sure you never lose money on Amazon: A specific framework for making smart inventory purchasing decisions.
Video: How to never lose money (5 Amazon inventory buying mistakes)
If your buying formula is dialed in, you can’t lose money on Amazon
One of the best lessons I ever learned about Amazon selling was this:
“You make your money when you buy.”
I didn’t understand this when I first heard it, but I really get it now. What this wise concept means is this:
If you make calculated and intelligent purchasing decisions, you can never lose money on Amazon.
You might lose money on individual items, sometimes. But if your buying formula is dialed in, you’ll always make money overall.
That’s what this article is about: Giving you a bulletproof buying formula so you always profit in the end.
What are the ingredients of a good buying decision?
Making a decision about what inventory to buy (and what to pass on) is actually very simple. It comes down to these three factors:
- What is the demand for the item?
- What is it selling for now (or what can I realistically sell it for in the future)?
- Am I allowed to sell it?
That’s really it. If you understand these factors (and how #1 & #2 interact), you will be immune to making bad buying decisions.
Buying strategy is subjective
I noticed that when many Amazon sellers first get started (before the buying process becomes intuitive), they want a paint-by-numbers formula. Most people just want to be told what numbers to look for in their scouting app: When to buy, and when to pass.
That’s why scanning app triggers (which I don’t recommend) are so popular. You get to shut your brain off and let someone else (or something else) tell you what to do.
But buying criteria is subjective. There isn’t a formula that will be perfect for everyone.
I’m about to give you a specific framework, but only you can decide what numbers to plug into the framework. For example, if you’re extremely desperate for money, you’re going to have very different Amazon Sales Rank criteria than a seller who can wait many months before they see a return on their investment. So you never want anyone to spoonfeed you specific numbers.
With that said, let’s get into every buying mistake you can make. Avoid these, and you can’t lose money.
Buying Mistake #1: Not knowing your numbers
Specifically, knowing your numbers means:
- Knowing what your approximate Amazon payout will be at given price points.
- Having personal rules about profit margins you need to see (and sticking to them).
- Understanding what sales rank says about an item’s demand. (We’ll get to this later)
Its important to have a basic grasp of Amazon fees, having basic profit standards, and having a basic grasp of Amazon Sales Rank.
I’ll make this easy for you…
How do you understand Amazon payouts at different price points?
Two ways:
- Your scanning app will tell you. Every app (that I’m aware of) calculates Amazon fees for you.
- The Amazon revenue calculator
What’s important here is to understand (again, roughly) what different selling prices translate to in terms of profit. For example, if you’re selling books, it’s good to know that a $12 selling price will get you at least a $3 Amazon payout in most instances.
How do you calculate your personal profit standards?
You need to have strict profit standards that you adhere to. At its most basic, this means two things:
- Minimum payout you’ll accept for any item. For example, “I will never purchase anything that I won’t get me at least a $3 Amazon payout.”
- Minimum ROI (return on investment). For example, “For every $1 I invest, I need to get at least $3 back.”
I recommend the “Rule of Threes.” Feel free to set different standards. But have standards, and stick to them.
How do you understand Amazon Sales Rank?
Understanding Amazon Sales Rank (or “best sellers rank“) is just a matter of understanding roughly what various numbers convert to in terms of how often an item is selling.
I’ll make this one easy for you also. Get my free ebook on Understanding Amazon Sales Rank For Books. (If you’re not selling books, this will still be useful).
What numbers don’t matter?
It shouldn’t make or break your buying formula to not have every Amazon fee calculated for every item. It’s excessive micro-managing to need to factor in shipping costs, low stock fees, etc into your buying formula. You margins should be big enough that these won’t impact you much.
Buying Mistake #2: Not factoring Amazon Sales Rank into your buying
It’s one thing to understand Amazon Sales Rank, and its another thing to actually apply it to your buying criteria.
You should always have a rough understanding of how often an item is selling on Amazon before you invest in it.
Let’s say an item looks profitable, and will get you a $5 payout if it sells at the current price. And it will cost you $1. So far so good.
But what if the Sales Rank indicates that item is selling on Amazon only once every two years? This changes things dramatically. Personally, I would need to see a much bigger payout to invest in inventory that is only selling every two years.
This is how Amazon Sales Rank impacts what inventory you purchase.
- Sales Rank impacts the minimum payout of profit you will need to see before you list an item.
- Sales Rank impacts whether you invest in an item at all.
Buying Mistake #3: Not reviewing the price history of low-demand items
You may understand the role of demand in buying decisions, but there’s one more common buying mistake: Not being aware of the average selling price for low demand items.
Low demand inventory is totally different than high demand inventory. If something is a fast seller, you can reasonably expect its going to sell for a price that is close to its current price on Amazon. I’ll never look up an item’s pricing history if it has strong demand.
But if an item is in low demand, and only selling every few months or years, that Amazon price right now may not reflect what it actually sells for. To determine that, you want to read the Keepa price history charts.
Let’s say you’re looking at a book and the lowest price is $75. And the Sales Rank is 5 million. I’m probably going to buy this book with those numbers. But first, I want to take a look at the pricing history. This might reveal that the $75 price is abnormally high, and it spends 95% of its time around $15. In this case, I’m going to pass on this book.
That’s the role of pricing history in your buying decisions.
Buying Mistake #4: Never ignoring lowball sellers, but not ignoring them too much
Part of purchasing inventory is that you always know roughly what you plan to list something for at the time that you buy. It doesn’t mean you’re drawing up elaborate pricing schematics for every item, or that you have an exact figure down, or that you spend more than a split second thinking about it. But if I’m committing to an item of inventory, I have a good sense of what I plan to list it for.
Often that can mean that something is only profitable if I price it above the lowest priced offer. Sometimes (but certainly not most of the time), there can be a significant gap between the lowest priced offer and higher priced offers. And those gaps can move an item from a “maybe” or a “no” to a “heck yes.”
I wouldn’t say this is a major factor in buying decisions. You could realistically ignore this completely, defer entirely to the lowest price at all times, and do just fine. But factoring in higher-priced competitors is still a significant part of good buying strategy.
Buying Mistake #5: Not confirming an item’s restricted status
Saved the most obvious one for last, but the final buying mistake you can make is simply not confirming you’re allowed to sell an item to begin with.
You scanning app should tell you this.
Final Note: Understand You Will Never Get It 100% Right
You’re going to make purchasing mistakes. Prices on some inventory will always tank. Some inventory won’t ever sell. All of this is normal.
But when you have a proven and consistent buying formula, when all the smoke clears, you will always see a net profit.
-Peter Valley
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