Before you buy products to build your Amazon inventory, read this guide and avoid these 5 critical mistakes that may ruin your Amazon FBA business!
After finding a supplier and signing your wholesale account contracts, the next step is to look through supplier catalogs and handpick which products to sell for your Amazon FBA business and then put in an order for product sourcing. This step is often overlooked and if not done correctly, can negatively impact your business before you even sell your first item. These mistakes are very common, especially among new sellers. In some cases, some sellers might not know about these mistakes until they’ve already experienced the problems first-hand or until it’s too late. Suddenly, sellers are panicking to solve these issues that could have been prevented.
By following this guide, you’ll learn how to avoid these dangers before they come up and know the perfect sourcing tactics that will lead to lower costs and higher profit margins!
Only Sourcing Brand Name Products
The first problem that a lot of new sellers face is solely relying on established brand name products or big-name companies to source all of their products. To be clear, there is nothing wrong with sourcing brand-name products! Brand name products often provide a lot of incentives such as brand cognition, brand loyalty, and quality assurance. The real problem comes when a seller relies too heavily on brand-name products for all of their inventory.
One of the biggest challenges of relying on brand names is trying to land an account and acquire any inventory or stock to sell. Many brand name manufacturers only supply sellers who purchase a minimum order quantity (MOQ). Brand name manufacturers do not sell to smaller sellers because most cannot meet the minimum order due to various logistical factors including shipping issues, storage for bulk inventory, or simply because it’s too much stock to sell. In general, brand name companies are less likely to entrust individual sellers who can’t sell enough stock that would benefit these manufacturers.
Along with trying to stock brand-name products, another challenge is selling your inventory. With big-name products, you’re competing against all the retailers and chain stores around the world. Brand names are great, but popular brands are stocked up at every major retail store or chain store in the world. Along with competing against retailers, Amazon third-party sellers are also competing amongst one another. Even if you can obtain inventory from a brand name company, there are going to be other Amazon FBA sellers who are stocking the same products and will sell them at the same times you are.
Our tip to sellers: diversify your catalog with a good mix of popular brand name products if possible and also sell some less known, but still high-quality brands. It’s also important to note that not all brand-name products will be best sellers or even profitable goods. For smaller sellers, it’s important to prioritize the profitability of products over the brand name or big-name products. Instead of solely relying on specific brands or products, try using different FBA tools that can identify multiple products with high-profit margins to build your Amazon inventory. Tools like Sellgo’s Product Tracker can be extremely helpful in the product research process to help sellers find replenishable, high-quality, and high-profit margin products.
Overspending or Having Amazon Overstock
Another mistake that a lot of new sellers and even some experienced sellers make is buying too much stock and then overspending on inventory. You know the idiom, “your eyes bigger than your stomach”? Well, product sourcing is very similar. It is very easy to overestimate your sales, that you end up buying way too much stock and not enough buyers. Overstocking is a common problem that sellers at every level will experience and is a logistical nightmare to solve. Not only do you overspend on buying too many products, but the inventory also takes up too much space to store and sometimes may even cost you more money if you’re paying for storage fees like a warehouse. The inventory taking up space also prevents sellers from buying new inventory that could help with sales and profit, so you’re essentially losing money because you bought too much of an underperforming product. If you are a smaller seller and you invest some capital in buying stock, it’s vital to get some financial return (profit) for the items you’re selling so you can keep buying and selling. If you overspend and buy too much stock and it doesn’t sell, a small-time seller is going to be stuck with a lot of inventory with no way to get rid of it!
Our tip to sellers: Start small and build up your inventory over time. Don’t overspend and overstock items you have no experience in selling. Like we mentioned above, a lot of suppliers only sell to sellers who meet the minimum order quantity, so before you put in an order for inventory, make sure the amount is not too much to handle. If you start small, you can test a small supply of various products and see which ones perform the best. Once you feel comfortable and have more capital to invest in larger quantities, then feel free to spend a bit more for larger quantities. Until then, play it safe and build your business over time.
Selling Time-sensitive Products (Perishable Products + Seasonal Products)
When it comes to time-sensitive products, you want to be very wary before you build your inventory. Time-sensitive products include two main categories: seasonal products and perishable products. When it comes to seasonal products, always remember that their sales records can fluctuate rapidly. Some months these items will fly off your shelves and some months they’ll sit and take up space. If you overspend and overstock on seasonal products, the likelihood of having remaining inventory after the season has ended is very high and can lead to problems we mentioned in the section above.
Other than seasonal products, we also encourage new sellers to stay away from perishable goods and products. Perishable goods have an expiration date, and using or consuming a product past its date can lead to illness or injury. If you’re ordering seasonal products or perishable products from overseas or international manufacturers, this may also take some time to ship to you or Amazon if you use Fulfillment by Amazon. The products may take too long to ship and may be out of season or expired by the time it arrives for you to sell.
Our tip to sellers: stay away from both seasonal and perishable products in general. It is always better to build an inventory around stock that is popular all year round and can last the shipping period and more. Selling time-sensitive products will always be a struggle because there are too many factors that can negatively impact the profitability of these products. Relying too heavily on these products can lead to devasting results and may even ruin your Amazon business. It’s best to stay away from these products, at least until you have some experience in optimizing the process to ensure profitability.
Forgetting Contract Negotiations or Not Negotiating
Whether you’re trying to land a wholesale contract or make a deal with another supplier, it is important to remember to negotiate. The skill of negotiation always seems a bit scary, especially if you have no prior experience negotiating. But we’re here to tell you, negotiating can make or break your business. When it comes to getting a good deal for product sourcing, it is vital to negotiate everything. Even if the negotiation is over a small amount of money, remember that these small amounts can build up and impact the profitability and sustainability of your business. You never want to overspend because it will always limit your available capital that could have been spent making more money. Also, note that not all sellers will have the leverage to negotiate. If you’re buying the minimum amount of stock from a manufacturer or a new/inexperienced seller, your negotiating power may be a bit lower. But as you grow your business and buy more amounts inventory, take the opportunity to negotiate product pricing, shipping or storing fees, and any other cost that comes down the line.
Our tip to sellers: negotiate, negotiate, negotiate! Especially if you hold a lot of value and leverage as a seller, make sure to gatekeep your business and prevent any waste of resources.
Accounting for Hidden Fees
Hidden fees are the expenses a lot of sellers are unaware of and it causes a ton of headaches if it goes unknown. One of the most common occurrences of hidden fees is shipping costs. Specifically, with international or overseas suppliers, the price tag for shipping inventory can be high. Sometimes you can negotiate with the suppliers, but oftentimes the sellers will have to pay for shipping costs. In addition to shipping costs, there may also be other fees such as storage fees if using Amazon FBA. Another common fee comes when you realize you’re buying products from a distributor, not a manufacturer. Distributors will buy wholesale products and then resell them for a profit to third-party sellers like Amazon FBA sellers. In some cases, you may be buying from a distributor who is charging you additional costs that you wouldn’t have to pay if you bought the products directly from the manufacturer instead. The last hidden fee that you want to look out for is packaging fees. Some products will need to be packaged individually after being sent from a wholesaler. If that’s the case, sellers want to take in the cost of paying for packaging material when calculating the cost of goods.
Our tip to sellers: due diligence is KEY. If you don’t know, ask questions and be curious about all potential costs before sourcing your products. These expenses can turn the most profitability into duds or even negative-profit items. Sellers who overlook hidden fees will most likely be hurting their business more than they are helping it. Be very careful about the products before you buy them and ensure that you’re calculating all potential costs.
Being Proactive Before Mistakes Hurt Your Amazon Business
If you’re reading this blog, it either means you’re about to start selling on Amazon or you’ve already started but run into some of these problems. We hope you are the former, and that you can use these tips to be proactive when sourcing products. Regardless of why you’re here, we encourage all sellers to be proactive sellers so that you can prevent these mistakes before they happen and hurt your Amazon business.
If you’re starting to sell on Amazon, be sure to check out the rest of our blogs and our FBA tools to find winning, profitable products and increase your return on investments.
For more help in product sourcing, feel free to check out our blog on Product Analysis and Product Sourcing.