When its okay to break the “3x Amazon Profit” rule, and accept smaller Amazon profit margins
What is the “3x Rule”?
The “3x rule” is basically this: Only buy inventory you’re sure you’re going to get triple your money back on.
Some Amazon sellers apply this to gross profits, some apply it to net profits.
The reason many Amazon resellers adhere to the 3x Rule like a religion is that tripling your inventory investment allows functions as a buffer. It’s a buffer against corrosive elements like inventory that devalues, inventory that never sells, and taxes.
Generally, I think tripling your money is being too liberal, and I prefer to see 4x to 5x on my Amazon inventory investment, minimum.
But there are some exceptions.
Breaking the 3x Rule: When its okay to accept lower Amazon profit margins
When am I content to merely double my money on Amazon?
I am content doubling my Amazon profit margins when an item has an extremely strong Amazon sales rank (“BSR), and is almost guaranteed to sell within one to two days.
To put it another way, I will apply a 2x Rule if risk is close to non-existent.
Recently I picked up 5 copies of Good to Great to resell, at $2 each. That title is consistently in the top 1,000 on Amazon, and I was totally comfortable bringing in a little over $4 per copy, because I knew they would sell within hours of arriving at the FBA (Fulfillment by Amazon) warehouse.
(For a primer on Amazon Sales Rank and how to know how fast an item will sell, see my article on understanding Amazon Sales Rank)
The Amazon 3x Profit Margin Rule should not be immutable, especially when have an opportunity to acquire multiples of inventory with an extremely strong Amazon Sales Rank.
The 3x Rule is to buffer you against risk. When there’s no risk, I’m happy to double my money on Amazon all day long…