How To Maximize Profits On Amazon Below you’ll find 2 scenarios that demonstrate what I am getting at with this post.
How To Maximize Profits On Amazon
Below you’ll find 2 scenarios that demonstrate what I am getting at with this post.
A couple of overarching assumptions are that this individual is able to spend $5,000 on items that will yield a 100% ROI and $10,000 on items that will yield a 50% ROI every month.
Example #1:
1. You begin with a $10K sourcing budget.
2. You WILL NOT buy anything with an ROI less than 100%.
3. You can consistently find $5K worth of 100% ROI items per month.
4. You consistently pass on every item that has an ROI less than 100%
5. You consistently find $10K worth of 50%+ ROI items that you never buy.
6. You end up making $5K per month. Your sourcing budget for the subsequent month has now increased to $15K.
7. Even though your sourcing budget has increased, you are consistently making $5K per month, with a few months being better and a few months being a bit less, depending on how your sourcing turns out month to month as there are only so many 100%+ ROI items that you can find.
Example #2:
1. You begin with a $10,000 sourcing budget
2. You are willing to buy items with an ROI as low as 50%
3. You buy every item that has a 50% ROI or greater regardless of when you find it during the month.
4. The first month you spend $10K on inventory, $6.7K on 50% ROI inventory, and $3.3K on 100% ROI inventory.
5. You end up making $6.7K in profits the first month.
6. Your sourcing budget for month 2 is $16.7K.
7. In month 2 you are able to buy all $10K of the 50% ROI items, and all $5K of the 100% ROI items with $1.7K unspent. At the end of the month, once these items sold, your sourcing budget increased by $10K up to $26.7K.
8. You continue to source all of the 50% plus ROI items you can find and continue to make $10K per month.
Now, this is more of in theory versus in practice, as it’s highly unlikely that you will be able to find the exact same amount of inventory every month and have it all sell within the month. Also, the numbers used are arbitrary.
You could change the sourcing budgets around as you see fit to make them work for your personal situation. Just make sure to redo the math. Even though this is somewhat theoretical, I believe there is real value in considering the above example when choosing your required ROI when sourcing products.
Now, a few notes on the above examples.
First, if you get to a point where you are comfortable with the amount you are making and the amount you are working, then by no means should you consider it necessary to lower your ROI to increase your income.
But if you consistently have part of your sourcing budget leftover at the end of each month, and you would like to make more money, I think it’s worth considering lowering your ROI a bit to do this.
In comparing the 2 examples, it’s worth noting that it would take the person in example #2 less time to source $5K in cost of products to resell than in example #1. The individual in each example would be scanning the same number of items, but in example #2 would be buying a significant number of items that would be left behind in example #1.
So, in reality, lowering your ROI is unlikely to add too much time initially to your sourcing, and might even decrease it. Lowering your ROI will likely increase your prep/shipping time as you will have additional items to deal with, but the time savings from sourcing will help to cover this additional time.
There are some additional risks to lowering your required ROI, such as prices going down to a point where you are unable to profit, and returns cutting more significantly into profits, among others. Be sure to account for these risks if you decide to accept a lower ROI.
In my own business, we base our purchasing decisions on a combination of ROI and the sales rank of the individual item. In other words, I’ll accept a lower ROI on items that will sell faster and look for a much higher ROI for items that will take longer to sell.
