Not everything you scan will be worth sending into Amazon for resale. How do you know which items are? In this series, I'll discuss the top FIVE factors that I use to decide whether or not I purchase an item for resale. Making educated sourcing decisions is important for the growth and survival of your business. Incorrect decisions can lead to holding onto inventory for too long which can lead to limited capital to reinvest. This can start a snowball effect. So let's start off making smart buying decisions from the start using the information available at our fingertips.
In this series so far, I've shared the ins and outs of sales ranks, how competition, reviews and “hidden” fees affect my buying decisions. Today, I'll be wrapping up the series by discussing the importance of knowing your target numbers.
What are target numbers?
Target numbers are the numbers that I use to restrict my inventory purchases. Why would I want to restrict the items I'm buying? If I look for items that meet my criteria I'm only buying the GREAT items and not settling for the GOOD or OK items. I've made the mistake of buying anything that will make me a profit and, to be honest, for the small seller this is more trouble than its worth. Think of all the prep that has to go into an item for a $2 profit. If I could get my hands on 200 of those items and they sell quickly then maybe but for 2-3 it's not worth it. That's why I've created target numbers to follow so I can guarantee that I'm only putting the GREAT items in my cart.
An inside look at my target numbers.
Target Number #1 – Spending Budget: When you walk into a store to source you should have an idea of how much money you are going to be spending. This will help keep you focused and making smarter buying decisions that will help stretch your dollar the farthest. Putting every item in your cart that will make your target return on investment (see below) doesn’t take other factors into consideration including best seller rank, number of FBA and/or merchant fulfilled (MF) sellers.
I use credit cards only for the benefits and pay them off at the end of each month. I don't recommend going into debt to start, or grow, an Amazon business. With that being said, my spending budget comes from my recent disbursement minus any expenses (shipping supplies, cell phone bill, etc). If I only have $500 to spend I want to make sure that I can buy the GREAT product with it so that my inventory is turning quickly so that I'll be able to reinvest sooner.
When you are just starting out, don’t go to your first store and say, “I’m going to spend $1,000.”, even if you have it. Why? because you end up putting really high expectations on yourself. If you don’t meet those expectations how does that make you feel at the end of the day? Start small and get the hang of what you are doing before setting high spending targets. It took me over a year to get comfortable with the idea of spending $1000+ in one place.
Target Number #2 – Target Return on Investment (ROI): This can be a percentage or a dollar amount or both. For example, my goal is to have my ROI be no less than 75%. This means I will profit at least three-quarters of what I initially invested into the item. I also have a $10 target return per item. If I can’t sell an item and earn $10 profit I’m less likely to buy it. Time is money and prepping, packing and shipping 5 items that will only many me $25 combined is not a profitable use of my time.
Many sellers start off using the 3x Rule. This can help you focus on items that will net you 100% ROI after cost of goods (COGS) and fees. For example, if I buy an item for $10 and sell it for $30 Amazon will take approximately $10 in fees. When I receive my payout I’ll receive $20 back. $10 will cover my COGS and the other $10 will be my profit on the item. You can use this as a guide. But as you get more comfortable, I recommend figuring out what your own targets are.
These target numbers can be used for retail arbitrage, online arbitrage, wholesale, etc. Give yourself a benchmark to work with no matter what your inventory source is. Knowing your numbers is an important aspect of running a business. We often hear about sales figures and people forget about the numbers to consider BEFORE you buy. I highly recommend that you write your target numbers down. It helps me to look at them while I am scanning in the store to remind myself of my goals.
I hope you all are having a profitable Q4.
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