When it comes to sourcing for items to sell on Amazon, you need to have some sort of process in order to test different products and scale the sourcing of inventory. I like to compare it to a science experiment (or base it upon my favorite TV show – MythBusters).
My process for the testing of products goes as follows:
1. Preliminary Research – This is what most people think of when you are walking through a store and scanning items on the shelf. I am gathering basic information about the product that includes: Cost of the good, potential profit margin, weight, packaging strength, sales rank, quantity available, and return on investment potential. I will not purchase a single product without first performing some sort of preliminary research.
2. Criteria Matching – In order to speed up my sourcing endeavors, I have a pre-determined set of criteria for any given product. If the product matches all of the criteria, it goes into my cart right away (and I take every single one they have on the shelf). My set of criteria meets my personal risk tolerance and keeps me in my comfort zone. Your criteria checklist could be a lot more relaxed or a lot more strict depending on your personal preference. Here is my criteria checklist for your reference (feel free to use it or modify it to your liking):
Sales rank < 100,000
Categories = Toys, Grocery, Beauty, Health, or Pet Supplies
Profit margin > 50% (this is where some might disagree with my checklist, but I have a reason for doing this)
Amazon must not be a seller of the product
List price > $10.00
Expiration date at least 6 months in the future
If a product does not meet everything on this checklist, they move into my testing process*.
*There are sometimes I make exceptions to this criteria list, but it is followed 90% of the time.
3. Proof of Concept – This is the testing phase of my process and it helps me to determine if a product is worth purchasing and selling on Amazon. This is the exciting part of selling on Amazon because it involves higher profit margins, rapid pricing changes, and a little bit of speculation. There are typically 3 different ways I test any given product:
a. I purchase one unit of the item and ship it into Amazon to be sold through FBA. This method entails the most risk, but it takes a lot less time to complete. You basically gamble on an item and let Amazon handle the shipping. If it doesn’t sell, you can request the item back through the removal services and return it to a local store.
b. I purchase one unit of the item and sell it MFN. If it sells, I simply package it up and ship it off. If it doesn’t sell, I can simply return it to the store during my next sourcing trip.
c. I list the item on Amazon via MFN and purchase one unit after it sells. This works great if you are testing an item that is readily available and if you don’t want to put your money on the line. The risk you run is that the store can sell out of an item and then you have to cancel the order (which can hurt your account health and restrict the product categories you can sell in down the road).
If a product passes this stage of testing, it is on to the next stage.
4. Small Scale Testing – This is where I ramp up the purchasing of a tested product to the next level. I typically start with a quantity between 5-10 units. This allows me to make sure my testing holds true and that the item sells as planned. If the product fails during this stage, it is back to the proof of concept stage to make sure the testing was done correctly. If all of the units sell as planned, I can bump it up to full scale sourcing.
5. Full Scale Sourcing – In this stage, I continue to source a tested item at every store I visit. I determine how deep I would like to go in terms of an inventory level and I make sure to keep that level up through retail or online shopping. If I notice a sudden (or even gradual) change in the number of sellers or the price, I start to reconsider my inventory level and sometimes lower prices to move inventory before it can no longer be sold (getting your money back is better than not selling at all).
Does my process work for every single item I sell, scan, or source? No, but I am ok with that.
There will be times where the numbers say one thing, but the market says another. That is just how business works. My process works about 90% of the time and that is good enough for my income goals and risk tolerance. You need to put together a process that works for you and stick with it over an extended period of time (making slight changes along the way).