Selling on Amazon

How Much Inventory Should I Start With on Amazon?

By June 21, 2021 No Comments
 

featured image:How Much Inventory Should I Start With on Amazon

We get asked all the time how much inventory should I start with on Amazon? Our general recommendation is 300 to 500 units. Here’s why:

Principle #1: Reduce risk

A good principle in business is to look for asymmetric risk-reward opportunities. You want a high potential reward for relatively low potential risk. Jeff Bezos, the founder of Amazon once said, “Given a 10% chance of a 100X times payoff, you should take that bet every time.” If you invest $1,000 for the potential to earn $100,000 (100X) with a 10% chance of success, your expected value is $10,000 (10% of $100,000), or 10X your initial investment of $1,000.

Finding a good product to sell on Amazon and investing in inventory is usually a good, asymmetric risk in my opinion. However, if you buy too much inventory, the risk side of the equation increases too much without increasing the potential reward enough to compensate for the increased risk.

This is why we recommend most sellers starting out order 300 to 500 units. The typical private label-type product we advise people to sell on Amazon retails for $20 to $50. The cost per unit for a product in this price range is around $5 to $15. This means your total inventory risk is $1,500 to $7,500.

You will likely run out of stock, which isn’t ideal. But, if you order too much inventory, you might get stuck with a lot of the wrong product or a product that needs something fixed, which isn’t ideal either.

Principle #2: Order enough inventory for an Amazon launch

The goal for a new seller is to launch a new product on Amazon, achieve high organic keyword rankings, order more inventory, and never run out of stock so you don’t have to relaunch the product all over again. Unfortunately, this almost never happens. Everyone, especially new sellers, run out of stock. Based on principle #1, this is OK and is expected.

Let’s say you launch a product and sell five units per day for the first week, or 35 units total. Then, sales pick up from your launch campaign and you sell ten units per day for the following week, or 70 units total. After the first two weeks, you’ve sold a total of 105 units.

You want to reorder inventory to avoid running out of stock. So you place an order and it takes five days to place the order and submit payment. It then takes 30 days to manufacture the product followed by 40 days to ship the product and get it processed into Amazon FBA. Your total lead time is 75 days.

If you maintain sales of 10 units per day during this time period, you need an additional 750 units (75 days x 10 units per day) to remain in stock the entire time. Combined with the units sold during the first two weeks of your launch, you need to order 855 units upfront before the launch to not run out of stock. If your product costs $5 to $15 per unit, that’s $4,275 to $12,825 in upfront inventory costs.

Most people are not willing to invest this much upfront for their first product on Amazon. In fact, I wouldn’t recommend most people invest that much unless they know what they’re doing or are being helped by someone who does. There’s a chance you might choose the wrong product and will be stuck trying to liquidate $10,000 worth of inventory.

For our high-end service clients, we typically have them order almost $20,000 in upfront inventory to get 1,000 to 2,000 units to start. We only recommend this because they’re working with us directly and have our help throughout the entire process. Plus, they have the money to invest.

If you’re on your own, keep your risk low. Start with 300 to 500 units for your first product, even if that means you’ll run out of stock at some point.

How do you know how many units you’ll sell per day?

First, it depends on how successfully you launch your product. If you follow a good launch strategy, you can sell a lot. If you don’t, your product may not sell at all.

Second, it depends on how much the product can sell at all. You can get an estimate of sales for almost any product on Amazon using a tool like Zoof. Sign up, install their Chrome extension, search for a product on Amazon, and you’ll see an estimate of the number of sales.

*Note: We have a partnership with Zoof, so we’re biased. We do think it’s the fastest, best Chrome extension for product research available today. However, you can also use similar tools by Jungle Scout, Helium 10, or Manage by Stats.

What happens if you run out of stock?

It’s not the end of the world. You will have to re-launch your product. This will cost you additional money in free product given away to get rankings (cash back offers) and likely some unprofitable ad spend. Plus, you will not have the advantage of the “honeymoon” period which appears to give new products launching for the first time on Amazon preferential rankings versus older products.

If you look at an entire year of selling on Amazon, comparing one person who ran out of stock and another who didn’t, the person who didn’t, assuming everything works well, will make more profit. They won’t have to run promotions to push their product back up in rankings they lost when they were out of stock. So, it is likely more profitable, assuming your product succeeds, to not run out of stock.

However, for me, the risk of a brand new seller choosing the wrong product is high. So running out of stock is OK for your first product if it means your upfront risk is lower.

Conclusion

As I mentioned at the beginning, our current recommendation is to order 300 to 500 units to start selling on Amazon. With the recommendation, we assume you’re selling a typical private label product that sells for $20 to $50. If you sell a much more (or less) expensive product, your initial inventory quantity might be different.

Also, if you are an experienced Amazon seller, you might order a lot more inventory so you don’t run out of stock. If you have the experience, this is a good idea.

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