Starting out an Amazon business can be tough. With all the information coming at you from all directions, how do you even know where to begin? Then there’s the ever-present “paralysis by analysis” where you feel you should continue learning as much as you can before you start. The problem is, you never start. You just keep “learning”. I know I regret the year I was stuck in that rut. If I had just listened to the people who told me to jump in, I would have been so much better off.
I write this article for you guys. The guys that feel like there’s still “so much to learn”. The guys that are still intimidated. I’m going to break down the seven biggest mistakes new sellers make so that you can avoid them. Follow these guidelines and you’ll stand a much greater chance at success. Maybe it’ll even make you feel comfortable enough to jump in!
1- Amazon Seller App Configuration
The Amazon Seller App is a great tool that Amazon has provided us for free, but it’s only useful if it’s set up properly. You see, the app comes set up for merchant fulfilled sellers. The fees are very different if you are to be taking advantage of the FBA program. Many sellers have sent their inventory into FBA and are surprised at the fees because that’s not what the app told them! This can be a costly mistake.
The good news is that it’s easily avoidable. All you have to do is let your app know that you plan on selling the item via the FBA program. Once this is done, every item you scan will tell you the fees that will be charged for your item using the FBA service.
To configure your Amazon Seller App for FBA follow these steps:
- Open the app as normal.
- Click on the menu icon. It’s the three lines in the upper left corner.
- Click on the settings icon. It’s the gear icon in the upper right.
- Select Product Search
- Under “Default Fulfillment Channel”, ensure “Amazon Fulfilled” is selected.
It’s that easy. Now your product scans will show you all your costs except inbound shipping to Amazon.
2- Buying Very Low Cost Products
When starting a new venture, we are all a little wary of the possibility of losing money. To avoid this, many of us choose very low cost items to start off our business. The logic seems sound.
Well, if I only pay $0.50 for this item, I can only lose $0.50 if I’m wrong. It’s selling on Amazon for $6.50! That’s 13 times what I’m paying!
The problem with this logic is that it is forgetting a few aspects of selling on Amazon. I recommend you not send anything in to Amazon that isn’t going to sell for at least $10, regardless of what price you paid for it. Here are the reasons why:
- Amazon fees– Amazon’s sales commission fees work on a percentage of sales price, but they still have a minimum fee. If you price an item too low, that minimum fee will kick in and it will eat most of the sales price. Also, you have to remember that you will be using FBA. You have to pay Amazon to go find your item on the shelf, grab it, pack it up for you, and ship it to your customer. They provide all of these services at an amazingly reasonable price, but most of them are fixed (except the handling charge which is weight-based). You will be paying this fee regardless of how you price your item. You need to have enough sales price to cover these fees. Be aware. It is possible to price your item so low that instead of paying you, Amazon will charge you for selling the item. This tends to start happening somewhere around the $4 mark, depending on the item.
- Add-on status– Amazon has this pesky little feature called the “Add-on item”. That’s where an item isn’t available for free shipping unless purchased alongside other items who are also FBA and your total amount spent in the order $25. This is the case even if the customer is a member of the Amazon Prime program. If there’s one thing I’ve learned about products that “go add-on” is they move SLOWLY. I’m talking snail’s pace.you could have a product with a great sales rank that drops off the face of the earth after going add-on. The metrics that dictate what items go add-on are unclear, but what we do know is that it has to do with low price and the size/weight of the item.
- Value your time– What is your time really worth? How long is it taking you to prep and pack those low profit items? How much does that come to per hour? If you are starting out on a tight budget, I would recommend you start with books where the margins are higher.
3- Not knowing your numbers
Yeah, you’re feeding the beast alright. You’re sending shipments in every day. But are you PROFITABLE? Many sellers have no idea. You can scan an item and show that it is profitable, but are you missing the big picture? While this is a very streamlined business, there is still overhead, and you need to keep track of it. Office supplies, shipping costs, and storage fees can get out of hand. Not only that, but is what you are buying actually SELLING? If you’re not keeping up with it, your FBA inventory could be getting bigger and bigger without providing the proper return.
There are two good tools I recommend to use to keep track of your numbers:
- Inventory Lab– Inventory Lab is more than accounting. It’s listing, shipping, scouting, and scanning. It’s a powerful tool that is basically everything you would need to run your business. It’s also pricey. They have two pricing plans, a monthly plan at $49/mo and a yearly plan at $480/yr. It may not be the way you want to want to start off, but it’s a great investment into your business. If you have a decent amount of start-up funds, you should start with it from day one.
- Tracking Spreadsheet– Don’t mistake this as “just a spreadsheet”. This sucker is POWERFUL. This spreadsheet was put together by Caleb Roth, self-proclaimed “Data Junkie”, and he knows how to make a spreadsheet crunch the data. Full of formulas and macros, this operates less like a spreadsheet and more like a full accounting program. This spreadsheet is a great option for those business owners who don’t want to have an expensive monthly bill just to easily keep track of their numbers. You can keep track of your expenses on a napkin until you make enough profit to snag this spreadsheet, but be sure to grab it as soon as you can.
4- Casting too Wide of a Net
Sales rank is a tough thing to learn at first. The reason for this is that rank works differently in each category. Sales rank is a comparative number that shows the relationship between one product and the rest of the products within it’s category. Since each category has a different number of items within it, the rank numbers will differ within each category accordingly. To complicate matters even more, some categories have a higher sales velocities than others. Because of all of these factors, it’s best to concentrate in one or two categories to start out until you get a feel for how sales rank works in those categories, then expand into others.
To a beginner, casting a wide net sometimes sounds like a good idea. After all, “variety is the spice of life”, right? Well, if you don’t take the time to understand the relationship of sales rank to sales velocity within a category, you will run out of money before you have a chance to grow. If you don’t understand sales velocity, you won’t know what to buy when you get ready to make bigger purchases.
5- Not Managing Inventory
You can’t just scan a bunch of products, choose the best ones, buy them and send them in to Amazon. Once your products are at Amazon, you will need to check on them periodically. The market for the product could change. A hundred people could send in the product after you and drop the price. If it stays that way, your product will never sell and you’ll be killed by long term storage fees. If the market is bigger than you expected, you could need to raise your price or risk losing potential higher profits.
At some point, you’ll want to get a repricer so that this is done for you automatically. Just starting out though, you should be able to manually look through your inventory and see if any changes need to be made. This business isn’t “set it and forget it”. Don’t just send in inventory and forget about it.
6- Lack of Determination
I can’t tell you how many times I’ve heard, “I went into the Walmart and scanned and couldn’t find anything!” or even “I can’t run this business. There’s just no deals to be found in my area.” I can tell you that both statements are wrong. I’ve been in a very diverse variety of towns in my time, and I’ve been able to find profit in every one of them.
I’ve been with people who say this. I’ve watched them scan. They will walk through an aisle and visually scan through and look for things that are appealing to them for some reason. Those few things they will pick up and scan with their phone to check for profit. The question is, how do you know what’s worth the money? You may be able to find decent product with this method after a few years of experience, but as a novice you should be scanning everything,
Every. Single. Thing.
Don’t get lazy. You’re building a business here. No one said this would be easy. Business is hard.
7- Fall in Love with a Product
Once you find a good seller, you’ll want to buy more once you sell out. The trouble is not knowing when to stop. As I said above, markets change. If one thing is for sure in the Amazon business, it’s that when you find a profitable product that sells well, eventually someone else will find it too. This is really nothing to worry about. Be happy that you have a gravy train to ride while you search for your next product.
When a drug addict first discovers a new drug, there’s an intense high. Eventually, they build up a tolerance and that high reduces in intensity. But they can’t let go. They just keep taking more and more trying everything they can to recapture that initial high.
Sometimes sellers are like drug addicts. They see a huge initial profit from an item and they get a rush out of it. They keep replenishing the product. As competition increases and profit diminishes, they still hold on. They still see that product as the diamond in the rough that it once was. They try everything they know of to make it as profitable as it once was. Eventually, it’s just not worth it and it’s time to cut ties.
Don’t be an addict. Know when to walk away.
Hopefully this article makes you more comfortable to start out in your new business knowing some of the pitfalls to avoid. If you have any questions, please ask them below. If you feel like you need more in depth training and leadership, I welcome you to join our Road to Freedom Community where you will have access to many detailed video courses as well as a tight-knit community focused on helping each other grow in their business.