Now that you have taken the checklist above, you should have a better feel if you are ready to buy a product or not. If you received 0 – 2 points, make sure that you read the information below to get a better understanding of the various factors involved with a purchase. 3 – 6 points received? You are on the right track! Brush up on those areas that you may be leaving out of your search criteria. Did you receive a score of 7? Awesome! Comment at the end of this article for ideas or additional factors that you like to consider when you are purchasing an item.
- Have you looked at the Amazon Best Seller Rank (BSR) of the item?
If you answered no to this question STOP WHAT YOU ARE DOING! One of the biggest mistakes that new Amazon sellers make is ignoring the sales rank of a product. The best seller rank of an item, in simple terms, helps you understand how quickly an item is selling (it gets more complicated than that, as you will see throughout the article). Amazon has been kind enough to provide the best seller rank of items that basically tells you how well a product is selling – so use this information to your advantage! I can’t tell you how many new sellers that I have worked with that stock their inventory full of items that are going to take a very long time to sell. For those sellers who are looking to compound their available assets, investing in slow moving product can hurt what you have to work with! So, if you are new, you are probably asking “where can I find an items best seller rank?”. Good question! You can find an items rank on Amazon.com by going to a product’s page and then scrolling down to the Product Details section (see below).
The rank shown in the picture above and underlined in red is what we are looking for. This example product was ranked 725 at the time the picture was taken. If you are using the Amazon Seller App, you can find the product’s rank simply by scanning or typing in the product information. When searched for, the rank will appear below the product name – as shown in this screen shot to the left. The LEGO Classic Medium Creative Brick Box I scanned showed up as rank 20 – at that particular moment! Which leads me into my next point..
- Have you determined the normal range for the items best seller rank?
So, we have determined that it is important to look at the rank of an item before purchasing it; however, it is equally important to understand what this rank truly means. Firstly, it is essential to understand that an item’s “rank” is simply a rank at a point in time, or a snapshot. Amazon checks all of the items on Amazon.com and updates the ranks hourly throughout the day. Because of this, an item’s rank is constantly shifting depending on how frequently it is being sold. That being said, the rank of an item can be “outside of its normal range” if it very recently had a sale, which can trick you into thinking that an item is more popular than it really is.
All that is a little background information to get us to our question about the “normal range” for the best seller rank. Using the normal, or average, rank range is much more useful in telling us how quickly a product is selling over time. Amazon doesn’t provide us with the average ranks of items, so that is where we get some extra help from these tools:
If you answered no to this question it might be because you have never heard of them! All 3 of these tools track data on Amazon, such as the price and rank of an item over time. They each serve a similar purpose but they each also have some unique features. I suggest looking at each of them to determine which style you prefer. I generally prefer the Keepa extension for Chrome that conveniently provides a graph right on an Amazon product listing page.
- The green line in this chart is the rank of the item.
- The blue/purple line is the price that 3rd party sellers like you and me are listing the product at
- The yellow shaded area is the price that Amazon is selling the item at
- Because there are many moving parts to this graph, click here for a detailed explanation on how to read the graph in its entirety.
You can see that the green rank line fluctuates up and down constantly and was as high as 4,000 and as low as within the top 100 at some point during the last 3 months. There appears to be stronger demand for this product when Amazon is in stock – the price also tends to be lower. When Amazon goes out of stock (the middle of the graph) the rank fluctuated much more wildly between 500 and 4,000. The “average” rank for this item over the last 3 months appears to be around 2,000, which may give you a better indication of what kind of sales volume you can expect when selling this product. But wait! Knowing the average sales rank is not enough – you need to know what a “good” rank even is.
- Have you looked at the category the item is in to determine if the average rank is considered good for that category?
Is a “good” rank the same number for every category on Amazon? Simply put, NO! Many sellers make the mistake of thinking that an item ranked 1,000 in home & kitchen is going to sell at the same rate as an item ranked 1,000 in baby. The reason this is wrong, is because each category has a different number of listings that are all being compared against each other. You can click here to download a sales rank chart that shows the total number of listings and top percentages in each category.
Amazon Sales Rank Chart PDF Download
It is generally a good idea to stay within the top 2% average rank for a category, and the top 1% if you want to move the product relatively quickly. There are some exceptions to this that factor into the “other variables” section of the article. You can also use the Jungle Scout sales estimator to estimate the number of sales a product listing will sell at a particular rank.
- Have you considered other variables? Seasonal items, hard-to-find items, if Amazon is a seller but currently out of stock?
Before you determine if an item has a “good” or “bad” rank, it is important to consider other factors. Some items sell much faster during certain times of the year – such as toys during the fourth quarter. A toy with an average rank of 100,000 is likely going to sell quicker in early December than a toy ranked 100,000 in June. Although it varies greatly from item to item, many people would say that a particular toy rank can sell 5 – 10+x faster in the fourth quarter than the other 3 quarters of the year. Similarly, an item that is hard to find might have a “bad” rank only because there are not many offers on Amazon or the price is very high. We will get into this in more detail when we discuss your ROI/Profit Margin requirements. An items rank will typically fall if Amazon was a seller and has gone out of stock.
- Have you looked at the competition?
Many Amazon customers don’t understand that a listing can have multiple sellers on it – don’t make that same mistake! The number of sellers on a listing can potentially have a big impact on your sales velocity. Let’s take 2 item with an average rank of 5,000 for example, item A & B. Item A has 10 sellers on the listing and item B has 100 sellers on it. If all the sellers were selling the item via Fulfilled By Amazon (FBA) and at the exact same price, there is a good chance that item A would sell 10x’s faster than item B. That is a simple way to look at it, of course, because usually not all sellers have their product listed for the same price. You can typically discount those sellers who have their item listed for a much higher price. In general, if there are a small number of sellers on a listing you can afford a higher rank.
- Does the ROI/Profit Margin meet your requirements?
ROI – Return on Investment, measures the amount of return on an investment relative to the initial cost. In simple terms, ROI helps you determine if the sale was worth it! To calculate your ROI, use the following formula:
Revenue – Your cost of the investment
Your cost of the Investment
Let’s look at a quick, hypothetical example. You spend $10 on a product, sell it for $20, and receive $15 after Amazon fees and any other costs. That means that your revenue is $15 . So to calculate your ROI, you would compute the following: ($15 – $10) / $10. Your ROI on that buy was 50%!
Now, unfortunately, I cannot tell you what your ROI goal should be – you have to decide that. Different business models call for different ROI’s. Are you going to run your Amazon business like Nordstrom’s Lord & Taylor and require a high ROI, or do you like the J.C . Penney approach of accepting a lower ROI in return for more sales. Your business can be be anywhere in between, the important thing is that you are considering your ROI, profit margin, and other important metrics when analyzing your Amazon sales. Selling on Amazon is fun, but it is a business after all, and it important to think of it as one.
* Don’t forget the fees involved with selling an item on Amazon. Check out the Understanding Amazon Fees article to learn how to accurately determine an item’s costs.
- Have you considered how this is going to impact your cash flow?
“Cash is king”. Ever hear someone say that before? It is a good saying to remember when it comes to selling on Amazon. According to some studies, up to 90% of small businesses fail due to poor cash management. Don’t make that same mistake. I have a bachelor’s degree in finance and spent time as a licensed financial advisor. One thing I learned from being in the finance world is that most people do not like to look at the hard numbers when it comes to both personal finances and business finances. When you are considering whether an item is worth purchasing, it is crucial that you stop and think how it will impact your cash flow.
When you are trying to determine how “deep” (the quantity of an item you should purchase) you should go on a product, not only should you consider all of the information above, but you should ask yourself what would happen if you did not sell the item(s). Even if you can buy 20, 50, 100 of an item and receive a good ROI, it may not be worth it if you are left with $0 while you are waiting for the items to sell. Are there other purchases that you are going to be missing out while your out of cash? It’s also important that you set aside funds that can be used for supplies, unexpected expenses, and taxes.
It takes work and practice! Even after considering all these factors, the decision of whether or not to purchase an item is one that all Amazon sellers struggle with at some level. The important thing is that you start selling. Something, anything! Make the proper analysis of an item and get it listed on Amazon – you will be surprised how quickly things can sell when you make smart buying decisions.