The Most Important and Least Discussed Amazon Seller Metric
Posted: September 5th, 2021
As an e-commerce seller of tangible goods you are conditioned to assess the gross margin potential of products. Put simply, your mission is to find products that you can buy for a low price and sell for a high price. There are a wide swath of tools that allow sellers to find these potentially high margin products. But equally important is inventory turnover. This is the amount of time it takes from the moment you purchase inventory to the date that it is fully sold and you have converted your investment back to cash. This metric varies widely by industry, but generally 3-4 inventory turns per year is considered good performance.
To accentuate this point, let’s use an extreme example. You purchase a container of X product. The cost per unit is $30 and the sales price is $100 per unit (great margins!). But it takes you 10 years to sell through all of the inventory. Was this a good investment? Probably not. A decade of inventory storage cost, plus the missed opportunity cost of putting that money in a common investment would make this a poor outcome. On the other hand, let’s say you purchased a container of Y product. The cost per unit is $50 and the sales price is $100 per unit (smaller margins). But for this product you were able to sell through all of the inventory in just 3 months. Was this a good investment? Most certainly!
So as an e-commerce seller you need to be equally focused on inventory turnover and gross margins. The former is often overlooked and rarely discussed, but needs to become part of your inventory purchasing assessment.
Product Phases (Launches)
A successful product meets a few basic criteria. High margins and high sales velocity, aka inventory turnover. High margins are typically attained by finding a niche with low competition relative to demand. High sales velocity is mostly driven by visibility, in other words having your product appear on page 1 of the search results for high traffic keywords. Everyone is trying to create products with the profile described above. While not all sellers are successful in building these high earning products, a well thought out product launch certainly can stack the deck in your favor.
When you’ve identified a good product opportunity, sourced and received the product and prepared a well optimized listing, your primary mission is to get it ranked highly in the search results. The challenge all sellers face however is the necessity to generate sales to move up in the search results, but complete inability to generate organic sales as a result of the low visibility of your new product listing. To solve this problem, sellers looks to both internal advertising (Amazon and Walmart PPC) and external sources of order demand like Facebook Ads and product launch platforms. Once such launch platform is Rebaid.com.
When sellers use Rebaid, they are leveraging the traffic and product visibility generated by this launch platform. Combining this visibility with an attractive promotional offer is a highly effective way to generate order demand. This is what Rebaid delivers. While the product launch phase is never profitable, it is a necessary step to achieve high organic rank in the marketplace search results, which is directly correlated with rapid inventory turnover. Depending on the competitiveness of the category, sellers may have to offer anywhere between 100 and 1000 units of their product at a high discount over a multi week campaign to achieve a successful outcome. If this critical phase in the product development cycle is successful, sellers can often recoup their product launch investment in 4-8 weeks, while maintaining a profitable, high turnover SKU for years to follow.
Product Phases (Liquidations)
All products have a lifespan. Some products never get off the ground whether due to competition, poor visibility or other undesirable attributes. Other products can have long successful runs, generating large sales volumes over many years. But even these high fliers do have a day where their demand runs dry. Whether it’s the product that never gained traction or a previously successful product that is now obsolete, this slow moving inventory needs to be managed. That’s where liquidation become relevant. Slow moving and obsolete inventory weighs on your inventory turnover performance and negatively impacts the financial performance of your business.
While liquidation may result in the sale of inventory at a lower cost than it was purchased for, doing this quickly and converting this inventory back to cash is preferable to the larger losses accrued by holding excess inventory for a prolonged period of time.The launch platform, Rebaid mentioned in the above section also provides an effective solution to this as well. By offering a discount for your product you can increase demand for your product and efficiently sell through your excess inventory, turning it back to cash. Keep in mind however that discounting only increases order velocity when combined with visibility. If you sell on the marketplaces (Amazon, Walmart ect..) and your product listing is on page 2, page 3 or deeper in the search results, discounting will likely have little effect on your sales velocity. You could offer a 99% off discount but if few shoppers are seeing your listing you’ll never generate many sales.
By posting your discount on a platform like Rebaid you can be sure it will be seen by thousands of shoppers looking for unique products with attractive discounts. This combination of discounting plus visibility is the key to increased order velocity and successful liquidation.
If shoppers can’t find your product you’ll never generate much in the way of sales. You could have the best product with amazing pictures, great reviews and an attractive price, but without visibility you’ll never be successful. Visibility is a necessity when launching a new product or liquidating excess inventory. There are few ways to generate this much needed visibility on the marketplaces. PPC campaigns are typically one of your only options, although the high cost and inconsistent display of your sponsored ad make this an strategy insufficient on it’s own. When combined with off-marketplace advertising, sellers can achieve the order velocity needed to successfully launch or liquidate.