As an Amazon merchant, you can’t simply raise your prices in order to preserve profitability. With dozens of sellers competing for a share of the same Buy Box, all things being equal, the merchant delivering the best prices will be victorious.
With market forces being what they are, smart sellers invest significant time and energy into the sourcing process. As has been said many times, profit is made when you buy – and, that’s certainly true for today’s Amazon seller.
In this post, we’ll discuss a few tips for sourcing profitable products to sell online.
Understand the Market You’re Buying Into
You’ve probably heard legends of sellers who supposedly “hit it big” by investing everything into an unknown item just before it became a best seller. Although I’m sure this occasionally happens, it’s uncommon. At eComEngine, we believe that our most successful customers are the sellers who look at the market strategically and take calculated sourcing risks.
Before you can take a measured approach, however, it’s vital to understand the market you’re buying into. The Amazon marketplace is not a one-size-fits-all ecosystem. Rather, it’s a diverse collection of categories, niches, and micro niches. Each one has its own nuances and, in some cases, seasonal considerations.
As an extreme example, let’s look at the Halloween costume niche. Although you don’t currently sell Halloween costumes, one of your suppliers offers a well-known product line. You’ve considered getting into that niche, but you haven’t done so yet. Each November 1st, your supplier sends out a clearance list of excess stock. The pricing list always catches your attention, as many of the SKUs are discounted by 90% of wholesale.
So, should you venture into this new market? Before making a final decision, you wisely think about the following:
Opportunity costs: The cost of stocking up is dramatically discounted, but it’s still a tangible investment for your business. If you invested a few thousand dollars in blowout costume inventory, there’s little chance of recouping that investment for twelve months. Would your capital be better spent on faster turning inventory?
Carrying costs: When the shipment arrives, you’ll be responsible for storing it somewhere. You could rent a mini storage unit, but there’s a cost associated with that. Likewise, it wouldn’t make financial sense to create an FBA shipment this early.
Changes in customer preferences: Just because an item was popular last Halloween is no guarantee it will be next year. If the costumes are of characters from popular children’s shows, will those programs still be on the air?
Take a Snapshot of the Market
You’ve run the numbers and decided that the Halloween niche seems too good to pass up. But, being the prudent merchant that you are, you decide to wait one more year before making your first buy. Most of the vendor’s costumes seem to be “evergreen” in nature (princesses and comic book heros that never go out of style). So, you set a reminder to begin studying this niche intensely when Halloween approaches.
As September rolls around, you remember to jump into your eComSpy account with the goal of diving deeper into each ASIN’s performance data. Although you can’t fast forward to November 1st, you still have last year’s clearance sheet from the supplier. (You anticipate the blowout prices will be similar).
You upload the list of ASINs into eComSpy, and the software returns your first report. Within moments, you’re able to review real-time metrics for each item, including:
- Sales rank
- Primary category
- # of competitors (FBA vs. MFN)
- Whether Amazon.com, Inc. (“Amazon”) is a competitor
- Lowest price
- Estimated margins, based on supplier cost and Buy Box prices
Since it’s September, costumes aren’t moving all that quickly yet. You set another reminder to refresh the report leading up to Halloween. As Halloween approaches, you’re amazed at how things are changing for the better. During the two weeks before Halloween, eComSpy helps you to identify significant increases in market prices that will more than offset carrying and opportunity costs. That seals the deal.
Now, when November 1st rolls around, you’ll be ready to move quickly and stock up.
Supplier Cost in the Right Context
In summary, vendor cost is obviously an important component when sourcing profitable products to sell online. As we’ve discussed in this article, however, it’s not the only factor. Smart sellers look at inventory costs in a much broader context, specifically that of Amazon market forces.
To get the right context for your sourcing decisions, consider trying eComSpy. There’s no credit card required, and you only pay for what you use. Get your free trial credits today.