Selling products on Amazon, whether you sell private label, arbitrage products, or anything else, can be a hugely profitable enterprise.
It’s important to remember that making profit is the reason we are selling anything in the first place.
It does not matter if your sales are $50,000 or $500 per month.
You need to maximize your potential profit and ensure you know your numbers for operating your Amazon business.
Let’s look at seven ways you could be losing money selling on Amazon.
1. Not Using Amazon FBA
You could be losing a small fortune if you are not using the Amazon FBA (Fulfillment by Amazon) program. This is especially more vital if you are the only one running the show.
Worst of all, you probably don’t realise just how much you could be losing!
Typical Merchant Fulfillment (MF) Process
Let’s think about your process for buying and selling products on Amazon.
Your process may look a little like this:
- Source products to sell on Amazon, whether you sell private label, arbitrage products, or wholesale
- Receive products at your home or business
- Store them until they are sold
- Create a listing for your products on Amazon
- When a product is sold, you need to prep & ship the product and pay for any shipping costs
Let’s not forget you also need to account for the following as well:
- Deal with customer questions, complaints, and returns
- Replenish shipping labels, packaging, and other necessary supplies
- Manage your inventory so you don’t buy things you don’t have space to store
Have you heard that entrepreneurial advice about being productive?
Basically, you should make a list of everything you do, and then cross off anything you don’t need to do yourself.
If you were using Amazon FBA, you’d be able to wave goodbye to many of the laborious chores in the process and list above.
You’d still need to source products and create your Amazon listings, but that would be largely it. (Well sorta)
When you receive products, you would label them and send them into your designated Amazon fulfilment center.
Amazon would take care of the shipping, returns, and any customer service issues. You would gain more time to source products and free up any concerns or costs around storing any of the products.
While you will pay Amazon FBA fees, with the time you get back you can be more productive at sourcing inventory and reinventing profits.
Your Amazon selling activity will become more profitable as a result.
2. Focusing Too Much on the Wrong Metrics
It’s easy to get caught up focusing on the wrong metrics both when sourcing products to sell on Amazon and when reviewing your sales performance.
Most of the metrics you can view from your Amazon seller dashboard and within your Amazon FBA account can be useful. The trick is to ensure that you don’t focus too much on specific metrics.
A common example of putting too much focus on the wrong metric is seen with Amazon sellers who predominantly use Amazon sales rank, also called Amazon BSR, to make decisions on what they should sell.
While selling something that is ranked in the Top 100 for its category might seem attractive. You may be one out of 400 other sellers on that product. Some may be willing to take a lower ROI.
Likewise, you could think you’re onto a winner by choosing to sell products with a high profit margin.
The caveat is it may take much longer to sell those products and tie up your capital until they sell at your desired profit margin.
You are limiting your cash flow the longer you need to hold onto a product which prevents you from reinvesting to grow your profits and your Amazon business.
The takeaway here is that you need to use all the metrics and data available to you to make informed decisions around what you want to sell on Amazon.
Find a balance, as focusing too much on one metric will likely lead to problems either now or down the line.
Take the time to map out your SMART goals and use some defined metrics to measure them.
Sometimes it makes sense to invest in tools to help give you the data you need, especially if it will save you money in the long run.
3. Letting Emotions Take Over
One way to lose money selling on Amazon, or at least severely limit your profitability, is to make decisions on what to sell based on your emotions.
Seeing a product that you love personally, or that you think people would love to buy, is not a reasonable basis for making an investment in a product.
Doing this certainly won’t help grow your Amazon business in the long term.
It’s no surprise that those who see long-term success with selling on Amazon are those that make data-driven decisions.
It’s great to sell products that you like or have an interest in, but you must still take into account profitability. The numbers don’t lie.
However, if you’re signed up for Amazon FBA, you gain this extra time to just focus on where you’re going to make money.
4. Spending Too Much Time on Unproductive Product Sourcing
Whether you sell on Amazon as a merchant fulfilled seller or use Amazon FBA, sourcing products will always be one of your core tasks.
A common phrase heard is “You make your money when you purchase the inventory”. In other words, finding the right products is the key.
This includes how productive you are at sourcing your products. You don’t want to waste your time doing unproductive repetitive tasks.
To give you an idea of what unproductive product sourcing might look like, let’s compare the differences when you do it online versus “in person” for both private label and arbitrage selling.
Private Label Amazon Seller
You can get your product designed, produced, and sent to you without leaving your own home.
You then send the products onto Amazon (if you’re in the FBA program), create your listings, and then wait for the sales to come through.
What would that process look like if you didn’t use the internet?
You could find yourself visiting manufacturers, doing designs yourself, and having to do a lot of coordination of tasks.
If your Amazon business grows to be huge, then that might all one day become part of your business process, but if you’re a one-man show then it’s not a sustainable approach.
Online Arbitrage Sellers
Likewise, the same rings true for arbitrage sellers.
With the availability of online tools to help you source products for Amazon arbitrage, you can find profitable products from the comfort of your own home and make use of software that will source products while you sleep.
Our tool here at Tactical Arbitrage is designed to help you do exactly that.
You can easily setup your own filters to ensure you find products within the parameters you want to focus on. Think, “Set it and forget it.”
Finally, you get a cache of products to choose to purchase from the results presented along with a wealth of data to help make your decision.
Retail Arbitrage Sellers
While searching for products in an actual store, commonly known as retail arbitrage rather than online arbitrage, can be fun, it is also a demand on your time.
Going to the local store and scouring the offers and clearance section will, at a minimum, cost you your time and gas money to get you there and back.
Depending on the size of your car, you will also have a limitation on how much product you can buy or find yourself making repeat trips back and forth.
If you don’t buy anything, you’ve still incurred your costs in getting there and lost your time!
5. Not Controlling Your Costs
Speaking of costs, not controlling them is another guaranteed way to be limiting your profits.
If your Amazon business is making a profit and you’re doing well, it’s easy to lose yourself in the habit of always using the same shipping solution, or buying the same postage labels, when there might be a cheaper option available.
Often, you might just keep doing the same thing because it works, and that you’d only be making a small saving.
However, over time that savings would compound and potentially increase your profits significantly.
Even if you’re enrolled with Amazon FBA, there are opportunities to save.
If you’re buying bulky, slow selling items, for example, you’ll be paying for more storage space at your Amazon fulfilment center.
Learn to manage your costs by sourcing the right products to begin with by using all the data you have at your fingertips.
This will prevent you from losing money later on as long term storage fees add up.
6. Doing Too Much Yourself
There comes a tipping point in your Amazon selling activities where you’ll need to start thinking about hiring staff, if you decide to grow to that point.
However, right from the start you should be looking to automate as much as you possibly can.
Using Tactical Arbitrage and Amazon FBA is something you can do from day one.
Think about what we spoke about earlier in our section on unproductive product sourcing, too.
Another way to relieve the pressure of doing things yourself is to look into using a repricing software solution if you manage 100s of SKUs. The time saved alone would more than pay for the monthly fees.
7. Not Doing Everything You Can to Minimize Lead Times
The shorter the lead time from you identifying a product, listing it on Amazon and shipping it to your Amazon fulfilment center, the quicker the turnaround time on you selling the item and having cash to reinvest at the start of the next cycle.
If you aren’t doing everything you can to minimise lead times, you’re limiting what you can make in a year.
What can you do to help yourself minimise lead times?
- Pay a little more for express shipping. If you can pay to get the items you’ve sourced a day or two earlier, then do so. Otherwise, you have “dead time” throughout each cycle where your cash is tied up and your goods aren’t at Amazon. When this happens, you’re not earning!
- Make time to send goods to Amazon immediately. If you know that your goods are arriving on Monday morning, plan for them to be sent to Amazon on Monday afternoon. The sooner you can get your items to your Amazon fulfilment center, the sooner they can be sold.
- Ensure your Amazon listings are ready to go. You can write product descriptions ahead of time prior to adding them to Amazon. While you will have certain things you can only add once you’ve started your listing, you can write descriptions for any new products you’re going to sell in advance.
- Reinvest when you can. Try not to wait until you have a certain amount of money before reinvesting. In the early days of your Amazon selling activities, this might be essential. However, your goal should be to get to the stage where you’re able to follow this process but have enough capital and the cash flow to always be buying while you have active stock available and selling on Amazon.
Stop Losing Money Selling on Amazon!
How many of these potential problems do you recognise in your own Amazon selling habits?
Whether you’re new to selling on Amazon or are vastly experienced, be wary of falling into bad habits and ensure that you’re maximising your profitability at every stage.