This Post is part of the “FREE Wholesale Training Course”. You can view the entire course listing and introduction to the course here.
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Module 2: Wholesale Preparation
- Introduction to wholesale sourcing
- Understanding how the buy box works
- Understanding how Amazon’s Best Seller Rank (BSR) works
- Understanding ROI / Margin
- Analyzing competition and potential volume
- Setting your personal buying guidelines
- Determining your long term strategy
- Distributors / Wholesalers vs. Manufacturer Direct
- Ideal targets for wholesale sourcing
- Tools for wholesale sourcing
You can click on each of the links above to go directly to the area of the module the best interests you. That being said, lets get right into the content!
Want to skip reading the massive wall of text? After the entire course is released, I will make videos for each of the sections for easier consumption. Make sure you are on our mailing list to be notified when it’s released!
Analyzing Competition and Potential Volume
Now that you’ve spent some time learning about the BSR and Buy Box, let’s start putting these concepts into practice. Both of those factors help you determine who your competition is on specific listings, and how many items you can potentially sell.
Competition can come in two methods:
- Competition on a specific listing by other Amazon sellers all competing for the buy box.
- If you are creating a new listing for a product, the other listings for a specific search term you are targeting are your competition.
In this section of this module, we will specifically be discussing competing for the buy box on a listing. We will discuss competition for listing new product later in module 3.
Who is your true competition?
You may look at a listing on Amazon and think to yourself “There’s no way I’m buying that item. There’s 150 sellers on it!” If there are 150 competitive offers on a listing – I would agree. But, you need to take a look at who the 150 sellers are, and weather you can consider them to be true competition.
If you remember back to the buy box training, we discussed that there are several factors in Amazon’s magic box that determines which seller controls the buy box. The two largest factors are FBA and price. Those are the factors we are going to use to determine who our true competition is.
We are going to assume that you will take our advice and sell your items via FBA and not merchant fulfilled. Since that’s the case, we know that our competition breaks down to the following:
- Other FBA Sellers
- Merchant Fulfilled Sellers that are severely undercutting on price
Your goal should be to stay away from competing against Amazon at all. That would mean to either not carry the item, create a new listing as a bundle, or convince the brand owner to stop selling to Amazon. The final two are strategies we will discuss later. For this exercise, lets assume Amazon isn’t a competitor. Also, lets assume merchant fulfilled sellers aren’t competitors for the buy box either. That leaves the other FBA sellers.
As we discussed previously, in order to be eligible for the buy box, you need to be competitive on price. What does this mean? It generally means you need to be within 2% of the current buy box price in order to have a chance at controlling the buy box.
Put another way – your true competitors on the listing are the sellers that are within 2% of the current buy box price.
Let’s take a look at an example.
In the example above, you can see these things:
- Buy box is at $84.95
- Buy box seller is using FBA
- There are 206 sellers on this listing
- The three other lowest prices are all merchant fulfilled. But no buy box, even though they are nearly $5 cheaper!
Ok, so we know the buy box is $84.95. Let’s use the 2% figure for the competitive price range. To calculate, do $84.95 x 1.02. This will give you the price that is 2% higher, which is $86.65. If we pull up the other offers, we can look for any sellers that are using FBA, and are priced below $86.65. Those are our TRUE competitors.
As you can see on the image above, only 3 sellers are currently selling this item below the $86.65 price. This means if you were to purchase the product in this listing, you would only be the 4th true competitor on this listing that is competing to take control of the buy box. Even though there are 206 sellers on the listing, you only initially need to be worried about those three.
Keep in mind, marketplace conditions can change. At any given time, some of the other sellers could drop their price and become competitive. We don’t want to 100% discount all the other competitors, but it is something to factor in to your decision making.
Potential Sales Volume
Lets take a look at estimating the amount of sales a particular product will have.
As we’ve noted before, there is no guaranteed way to know exactly how many sales there are for a specific item. However, the BSR history can give us some clues. I’m going to introduce two FREE tools that can help you with sales estimation:
Both of these tools use their own specific tracking and “black box” methods to estimate sales based on sales rank. Which of them are more accurate? Neither, really. At times FBA Toolkit seems to be more accurate, and at times Jungle Scout seems to be more accurate. Personally, I use BOTH of them to give me estimations, and I average them out.
I like to use historical Keepa data to try and predict the future BSR of a product. As we’ve noted above, using the current sales rank can potentially be dangerous due to BSR fluctuations.
Here’s the Keepa graph for the LEGO item we showed above:
You can see this is the history for the last month. By looking at this, you can see the rank hasn’t shifted a lot over the last 30 days. I’m looking to get a relative average of what the rank was to determine what it might do in the future. I like to put a mental line, right through the center of the graph where it almost splits the graph in half. Here’s what that would look like if you actually put a line through it:
As you can see, it splits most of the sales in half. The number to the right closest to the line is roughly 500. This is the number we’ll use for calculation purposes. Now, we need to know what category the item is in. Scroll down the product detail page, and you’ll see this:
It’s in the Toys & Games category. Now we know the average sales rank is 500 in the Toys & Games category over the last month. Let’s use this number, and use the two tools we mentioned above to get an estimated sales total. First, Jungle Scout Estimator:
The estimated sales per month is 2,458 as noted in the image above according to Jungle Scout. Now, let’s see what FBA Toolkit says:
The estimated sales per day is 46, which equates to 1,380 over the last 30 days according to FBA Toolkit.
This is a wide variance. This is why I find it hard to do all my estimations with one tool. Due to this, I use an average between the two: 1,919.
Wow! If I had this item in stock, I could sell almost 2,000 of them per month? I could retire on that!
Hold on skippy…let’s not get ahead of ourselves.
Factoring In Competition
1,919 is the estimated amount of sales that occurs on Amazon as a whole. Remember, multiple sellers are competing to control the buy box. We need to factor in the competition to figure out how many sales YOU could potentially get by selling this item.
Looking at the example earlier, we see there are 3 TRUE competitors. If we carried this item, we would be the 4th. In order to calculate how many sales per month we could possibly achieve, we’ll use this formula: Estimated Overall Sales / TRUE Competitors + 1
In this example, it would be 1,919 / 3 + 1, or 1,919 / 4. This equates out to 479.75, rounded up to 480.
To sum up, if you were to carry this item, and be able to sell it at the competitive price, you should sell roughly 480 of them per month – assuming market conditions don’t change.
When making a buying decision, I don’t like to use that as absolute gospel, because it’s only an assumption, and the market conditions can change rapidly. Here’s some things that could change by the time our items hit Amazon’s warehouse:
- Additional sellers drop their price, which creates more competition and share of the buy box.
- Amazon themselves could start carrying the product (we show how to hedge against that later).
- Demand for the product could change, causing sales to either increase or decrease (Seasonality factors huge into this).
If I were to buy this product, assuming I would hit the acceptable profit margins I am looking for, I may start off with an order of roughly 200 – 250 units, about half of what the estimation is. This would give me about two weeks supply if the estimations are right. Once the item hits Amazon’s warehouse and actually starts selling, I can base my decision making off my actual sales instead of estimations. I can’t stress that enough:
Once you have your own sales, ditch this method of estimation and use your own internal sales to forecast future sales.
Your own sales will always be more accurate than any random tool you’ll be able to find.
Here’s a very quick recap of steps:
- Take current buy box price, and multiply by 1.02. Count the number of FBA sellers at or below this price.
- Look at Keepa for average sales rank history, to predict future sales rank.
- Use average sales rank to estimate total sales by using FBA Toolkit and Jungle Scout Estimator.
- Use “Estimated Sales Formula” to get an estimated amount of sales you may be able to capture if you were to sell a specific item.
Now that you know how to analyze competition and potential volume, it’s time to move onto Part 6, which is setting your personal buying guidelines.
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