The Bulletproof Buying Formula: Minimizing Risk With New FBA Fees

A guide for protecting yourself against FBA fees, and the “four corners of buying criteria.”

In this article:

• The “Rule of Threes,” and revamped buying criteria for FBA sellers.
• Other changes to mitigate the impact of new FBA fees.
• How to guarantee you never lose money.
• FBA Mastery in Woman’s World magazine? (Weird)

The real implications of new FBA fees

Despite the choir to the contrary, the numbers don’t lie: Increased FBA fees do not put us out of business. Yet they do remove our wiggle room (aka our “luxury of being lazy.”)

Today, we have to know our numbers and have a formula that guarantees we won’t fail.

Remember: You don’t have to be smart if you have a formula that makes failure impossible.

Prior to increased FBA fees, we could feed endless amounts of books into the mouth of the Amazon monster, with extremely loose regard for sales rank, book weight, and with only a loose grasp of the numbers, and it was pretty hard to lose money.

Yes it used to be hard even for amateurs to lose money selling books on Amazon. Now it is very easy for amateurs to lose money selling books on Amazon.

What separates the amateurs from the pros at the stage of buying inventory? It’s how you understand these four things…

The four corners of buying criteria

1. Selling price criteria
2. Weight criteria
3. Sales rank criteria
4. Risk criteria

This article is about how all four of these factor into buying inventory in the current FBA landscape.

The Rule of Threes

Before we go through each of these, let’s assume you want to maintain this timeless “rule of threes” buying formula:

1. At least tripling the cost of your book or item.
2. Maintaining a minimum payout of $3.

This is the formula I’ve taught for years. Either take this as gospel or maintain your own rules, but everything I’m taking about here will be based around this tried-and-tested standard.

Let’s look at each of these four criteria one-by-one, and how they interact to inform what inventory you should buy…

1. Selling price criteria: Knowing your minimum price

Simply put: This means having a price you won’t sell a book for less than.

Despite everyone shouting that new fees represent “the end of the $10 book,” the numbers don’t bear this out. What the numbers do bear out goes more like this:

“It depends…”

Let’s take a book I used in a recent article that I think represents the “typical paperback book”:

• The Tipping Point (ISBN 0316346624).
• Typical book size (5.5″ x 8.5″).
• Typical book length (300 pages).
• Typical book weight (<1 lb).

With this book, at a $10 sale, you still get a $3.49 payout. Anyone can say whatever they want about the end of the $10 FBA sale, but the numbers don’t lie.

2. Weight criteria: Knowing the weight of your book

Wait, didn’t I forget to finish my point on “selling price criteria”? No. Because weight is the biggest factor in FBA fees, and selling price & book weight are inseparable. So we have to merge the two.

Because the new fee environment demands new precision, there’s an added advantage now to adding one new layer to buying criteria: Weight.

Yes, your scanning app does this, but as covered exhaustively elsewhere on this site, your app isn’t showing you every FBA offer. So no matter what my app shows me, I want to be able to assess a book’s weight in a split second, and answer the question:

“Is this a book I need to sell for $10, or a book I need to sell for $12 (or more)?” (I’ll explain these numbers in a moment)

Then I check FBA offers, and I’m on to the next book. I don’t want to be forced into adding another step by visually confirming the weight of the book in my app. The more you can get done in the “pre-scanning” phase, the better. That’s always been the case, but it’s even more so today.

Estimating weight is pretty easy. To get a feel for it, just pick up a few books ,then look up their weight on Amazon or your scanning app. It gets pretty simple pretty fast to learn what a <1 pound book feels like vs a >1 pound book.

My price-weight buying criteria

Based on what we just covered, my criteria has become:

• <1 pound: $10 minimum price.
• >1 pound: $12 minimum price.
• “Big heavy book” (e.g. textbooks): $13 minimum price.

If the weight is uncertain, I err on the side of “greater than 1 pound.”

Remember, this is assuming I’m still tripling my investment (i.e. books that are $1 or less). Based on the cost of goods, I adjust the pricing floor accordingly.

Like everything with sourcing books, this becomes second nature very quickly.

Recap

To recap, here’s how I used to buy:

“My minimum selling price is $7.50.”

Here’s how I buy now:

“My minimum price for a book I instantly assess as being under 1 pound is $10, over 1 pound is $12, and “big and heavy” is $13.”

New FBA fees demand new precision.

3. Sales rank criteria: Knowing the demand for your book

(I’ll cover this at length in the next article.)

4. Risk criteria: Reducing price volatility and depreciation

Yes these are big words. But the concept is simple.

The idea is this: Strategically limiting the purchasing of books that have a high possibility of plummeting prices. The science to this is extremely inexact, but there are tricks to tilt the odds in our favor.

This is the least important of your buying criteria, and you can avoid learning this altogether and still do fine. But this gives you a slight edge.

Risk mitigation is a level beyond simply knowing the numbers on the price you expect to sell your book at. It’s employing an added layer of scrutiny to avoid buying books whose prices are volatile and likely to fall.

This is designed to address one of the biggest grievances of Amazon sellers: You buy a book, ship it in, and the price plummets – never to rise again.

This is probably an entire article in and of itself, but here are three ways (not an exhaustive list) to detect books whose prices are likely to drop:

Risk mitigation move #1: Avoid highly competitive books

Of the three, this is by far the most impactful.

Simple fact: The more sellers there are for a product, the more competitive it is, the more sellers there are to underprice you, and the higher the likelihood of the price dropping.

You can still find plenty of books with 100+ sellers that have $10+ FBA prices. But those are also the offers whose prices are most likely to drop.

As a formula, what would this look like? It’s impossible to impose rigid rules, since this hinges upon sales rank (e.g. the better the sales rank, the more competitive a book can be and still maintain a profitable price).

That said, a conservative seller might begin to avoid all books with more than 50 or 75 offers.

Risk mitigation move #2: Avoid books for which you lose money if Amazon drops their price

Let’s say you have a book. Amazon is your only competitor. You underprice them by 50 cents and barely hit your desired profits.

What happens if Amazon drops their price? You take a loss.

The problem is that Amazon‘s prices fluctuate wildly, and you can (almost) never price higher than Amazon and get a sale. So they are the one competitor you don’t want to mess with. If they drop their price, you’re out of business for that book.

Don’t go up against Amazon whenever you don’t have wiggle room.

Risk mitigation move #3: Avoid books that are “on their way out”

It happens all the time: You buy a book. Your qualitative alarms go off and tell you: “This is worth money now, but it won’t be for long.” You buy it anyway, because until recently we had the luxury of being wrong a lot of the time.

Here’s a common example: Travel guides for which new editions come out every year. You can watch these go from a rank of 80,000 to 800,000 in a span of six months, because the demand plummets when the new edition comes out.

Prior to new fees, you could throw money at books like this and reasonably expect to usually come out ahead. (I once bought close to 100 retired travel guides from a library book sale in Vail, Colorado without a second thought. Today, I might be more conservative.)

In practice this is always inexact, kind of like predicting stocks, but a good formula might go something like this: Any book in a high risk category (list below), that has a rank inching close to 1 million, and has an Amazon payout that is within 50% of being unprofitable, then avoid or proceed with caution.

Be careful not to take this as gospel. I’m giving you the concepts. Create your own criteria to fit your needs and risk-tolerance.

Examples of high-risk books that tend to fade quickly include:

• Super-volatile categories of textbooks like law books.
• Any book with a year in the title [e.g. 2016 Guide To Casino Conventions].
• Computer books.

The takeaways

1. We have not seen the end of the $10 FBA book.
2. FBA fees definitely do not mean the end of bookselling.
3. Have firm minimums and maintain them ruthlessly.
4. Higher FBA fees enforce new precision.

That’s it.

-Peter Valley

Endnote: FBA Mastery gets its 15 minutes of fame

Finally I can make my mom proud.

Last week Woman’s World Magazine, with a circulation of 1.6 million, ran the below article on “turning used books into cash.” And FBA Mastery got a shout out.

(If you’re finding FBA Mastery after reading Woman’s World, welcome and sorry for this site’s lack of fudge recipes and Doctor Oz quotes).