A question that we repeatedly get asked by sellers on Amazon is how to determine which products will actually sell on the platform and not get stuck forever in their unsold inventory.
Many new sellers are wary of putting their money into products that may fail to take off, and result in a financial disaster for their aspiring enterprise. This challenge is real! But with the right information, you can minimize the risk of getting stuck with products that don’t move.
In this article, we present three vital suggestions to help you make wise buying decisions.
Familiarize Yourself with Products You are Permitted to Sell on Amazon
To begin with, it is crucial to understand the range of products that you can sell on Amazon before you stock up.
As a new business, Amazon restricts you to sell only in specific categories. However, as your sales volumes go up, you will progressively receive Amazon’s approvals to sell in an extended number of product categories.
The good part that you will have at least 12 unrestricted product categories that you can enlist for from the first day on Amazon. And within these categories, there are some excellent options that you need to explore.
We suggest that you identify three solid categories from these unrestricted products list that are known to move fast, are easy to understand, and have positive feedback from many people. These categories could include Toys and Games, Home and Kitchen, and Patio, Lawn and Garden.
In these three categories, there is a multitude of products that can be conveniently sourced from stores and via Google search. These products encompass a wide array of items, including oven mitts, board games, garden hoses, and dolls among thousands of others.
After you have been an Amazon seller for some time and found your bearings, you can gradually up your game and enter more categories (as your approvals from Amazon expand.) Some tried and tested options at that stage could be Grocery, Health and Personal Care, and Beauty.
The majority of the products that we sell on Amazon (other than Q4 when we mainly sold Toys) are based on these three product categories.
Product Approval Process
Upon installing the Amazon Seller App on your mobile phone, you can instantly know if you are approved to sell in a specific category. This Seller App is directly linked to your seller account on Amazon. It will send you a notification if you are restricted from selling a particular product.
The Amazon Seller App is a reliable tool to complement other paid product scouting apps. (I use this app while researching products online to ensure that I am approved before making a purchase decision.)
It is important to note that some of the products may be listed in two different categories. Here, you might encounter a situation where you are approved to sell in one category, but barred from another.
For instance, costumes can be sold in both Toys and Apparel. If you see a product that is listed in two categories, ensure that you seek approval in the category that is unrestricted for you. In case you are approved in both of the categories, review the rankings and profitability data to establish which one suits you best.
Further, certain brands are unavailable to third-party sellers. These brands might include names like Dunkin’ Donuts, Norelco, and Gillette.
It is vital to understand here that while you may be able to sell in a specific category, you might still encounter a brand that is restricted to that category.
Use Amazon Best Seller Rankings as Your Guidepost
After you familiarize yourself with various categories of products, and have targeted a particular product, you need to understand its sales propensity (how frequently the product sells) on Amazon. If the product sells quickly, it will enable you to re-invest in your business faster, leading to rapid growth (and learning).
The Amazon bestseller ranks are the only data that the retail giant offers with regard to the frequency of the sale of a product. These ranks can be located on the product detail page or through a scouting application.
While this buying approach is not without its limitations, it can provide you with some useful information to guide your purchasing decisions. If a product is sold more rapidly, its rank will be higher. For example, the number 1 rank for a product implies that it is the most widely bought item in that particular category.
Furthermore, it is crucial to understand that ranks are treated differently in various categories. For instance, a ranking of 30,000 in toys is significantly different from a ranking of 30,000 in the baby category. The reason is that a lot more toys are sold on the platform compared to baby products.
We recommend that as you move along, you create your own “comfort zone” ranks for various categories. These ranks imply that you are certain of purchasing these items for sale.
You must remember at all times that product ranks change swiftly and a particular rank only indicates which product has been sold recently.
To understand more about a product’s past ranking, or its performance over a specified period, you may like to check out CamelCamelCamel or Keepa, which are two dependable websites that offer graphs based on these rankings.
Other Key Considerations When Buying Inventory
When it comes to rankings and categories, there are other important factors to evaluate before buying products for your Amazon business.
You will find much information online about profitability and return on investment or ROI, which are crucial aspects of your purchase decision. A simple way to gauge this is the “3X Rule” which is more of a guideline rather than a rigid formula.
The 3X thumb rule suggests that your objective should be to sell your item for three times the price that you bought it for. For instance, if you purchased a product for $30, the price at which you aim to sell it will be $90.
In an ideal setting, this implies that your money will be doubled. The fees levied by Amazon and ancillary costs would be one-third of the selling price (which comes to $30 in this example). From the remainder, you need to minus the buying price ($30) which will leave you with a net profit of $30.
The 3x rule allows you to aim for a 100 percent ROI. While this is an ideal figure, it may not always be possible. Depending on your sales volume, we might suggest an ROI of 50 percent. However, multiple data points are involved in this decision, including the product rank and number of sellers in the marketplace.
Lastly, we suggest that both new and more experienced sellers should avoid getting emotionally carried away by a product or by your initial business euphoria. It is advisable to purchase 3 to 5 items at the beginning and see how it goes. In case you are an experienced seller, you might choose up to 10 products at a time, but this should not become a regular practice unless you have reached a point where you have accumulated substantial business capital a commanding level of growth.
With experience, you will get the knack of which are the hottest products to buy. You will be able to determine what sells well and which niche items sell all year around.
Be prepared that your initial inventory selling in a fiercely competitive Amazon marketplace is going to be intimidating. But things will get more comfortable as you continue selling. If you manage to stay in the game long enough, your initial fear of purchasing the wrong products will eventually give way to buying confidence and understanding.