Tuesday, June 21, 2016

Turnover Tuesdays - Creating Structure for Your Purchase Decisions

For those who are not familiar, I started a series a while back called Turnover Tuesdays. Every Tuesday I like to highlight one item that I have resold. This will include profitable and non profitable sales. I hope that there is always something to learn.








This is inspired by a post on Saverocity Level 2.  If you are a member you are able to see it, if not you have to reach out to Matt of Saverocity to see if he will let you join the elite group.  I won't go into the details of the post to keep out the riff raff but we'll talk generalities.





How Do You Decide What to Purchase?  Create a Rubric for Yourself


When you approach an item to purchase for resale, how do you decide whether or not you should purchase it?

You could make a quick decision on the spot.  Often times that will be sufficient if it is very obvious whether you should purchase. If a $30 item has a 100% return on your investment and will sell fast, I will buy it 100/100 times.


Far more often there are grey areas.  Items I may buy you would scoff at, items that you may buy I wouldn't touch.  Then there are items that you might buy sometimes based on your mood and sometimes not buy.  


It's usually not good to be making business decisions based on your current feelings instead of objective criteria.  It's important to create your own rubric to decide whether an item is a good item for purchasing.  The rubric can change over time, mine is continually changing, but hopefully it gets more and more exclusionary with time because you become better at finding higher value purchases.



Factors for Creating Your Rubric


Available Capital

I would argue that the most important factor when creating your rubric is available capital.  If you have $10,000 of available capital and you set your minimum at 50% return on investment (ROI) but you can only find $1,000 worth of purchases at any given time, if you are interested in selling more your ROI is out of wack with your skill level and your ability to make more money.  I would rather spend $8,000 on items that are 30% ROI and $1,000 on the items that are 50% ROI.  I would make a lot more money that way.

Anticipated Capital Needs

After available capital, your anticipated capital needs are extremely important as well.  If you spend $9,000 on 30% ROI items, when you find the 50% items you won't have any money available to buy them so you need to keep that in mind.  This is very relevant as we head towards Q4 (only slightly more than 3 months away!).  The deals get better and better as you get closer to November/December so don't blow all your capital in August on items that won't sell quickly.


Return on Investment


This is the most obvious factor but it is most definitely not the only one.  I've passed on many items that were 100%+ ROI because of other factors.  Right now, my ROI minimum is 30% but that has increased significantly with time.  I hope to increase that as I find more and more 50%+ ROI deals.


Profit per Unit


This is a very important factor.  You find an item that costs you $1 and you see that it costs $8 on Amazon.  Brilliant!  The problem is that the $6 FBA bring that down to $2.  After shipping, you are down to $.50 of profit.  That's 50% ROI!  The problem is that it is $0.50.  Is $0.50 a unit worth it? Sometimes, but rarely.  You need to make that decision on your own, but I won't buy an item for $0.50 profit.  My personal minimum is usually $3 but sometimes I will go down to $2 depending on other factors.  That doesn't mean I'll buy an iPad with $3 profit.  My ROI minimums will stop that.  

If you only have a profit of $0.50, what happens when a seller lowers their price by $1.00 and has 700 of them.  That's called negative liquidation.  It's painful but sometimes necessary.  I'm going through some exquisitely painful ones right now.  The shame!


Rank

While Amazon rank can fluctuate significantly from week to week or even day to day, rank is very important as it gives you an idea of how fast you can sell the item.  I'm more likely to buy the item (or buy more of it) when the rank is good because I will pay little to no storage fees.  That profit killer!
  

Is it Reproducible and How Many Can I Buy?

As I discussed last week in Turnover Tuesdays, my ultimate goal is to create reproducible sales. I'm far less likely to buy a clearance item that is $3 profit than a full priced item that is $3 profit.  A one time $3 profit doesn't do it for me but if I can continually get $3 and 50%, then we are in business.

I am more willing to make that same purchase from the clearance section if there are 20 of them  One item of $3 means adding the product to inventory, starting a new line in my inventory tracking.  It's honestly not worth the money.  For $30, it is more worth it.


Reviews

Negative reviews will turn me off from a product even if the ROI is solid.  I don't want returns ruining my profits.  If it's 200% returns I'll still sell it despite the negative reviews, but 30% and negative reviews, no thanks!

Amazon Selling the Same Item

If Amazon is on the listing, I need better ROI numbers than if they are not.  They are a brutal competitor and can wipe out a 30% ROI easily.


How Many other Sellers are there and How much Inventory do they have?


I am far more likely to take a chance/make a test purchase when the listing doesn't have very many sellers on it.  Sellers undercut others sellers and then other sellers undercut and the race to the bottom begins.  If there is only one other seller, he can't race me to the bottom if I don't undercut him. It gives me much more control.



What factors are on your rubric?  Anything I'm missing?

Posted by Oren at 10:29 PM
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