How much inventory do you really need to carry in order to make a desired net profit each month? I only have 30 days into FBA (34 days to be exact) and we are learning quickly the math game of fulfillment by Amazon. We have yet to find an article that really explores the numbers when it comes to determining what inventory we should carry. In some groups, podcasts and eBooks, we still here the “thirds rule” come into play when we talk about inventory. And the idea is this – if you want to gross $1000 a month, you need to have at least $3000 in your inventory. If you want to gross $5000 a month, you need to have at least $15,000. This doesn’t mean invest $15,000 in your business. It means you need a retail value of $15,000. It also doesn’t mean you are going to net that profit at the end of the month. That’s just your gross. If you are grossing $5000 a month, you should expect to take home about $1800.
If you are following the rule of sourcing where your item for sale should have cost you 1/3 (or less) of the retail price than that means you will probably be $5,000 cash deep into your business for a retail value of $15,000+. Does this mean you are investing $5,000 to get started?No way! Does it mean you will be flipping your profits until you hit this point? Definitely. As it stands today, we have over $1000 invested in our FBA business. Our retail value today is over $4500. (But Valerie, how does that follow the rule of thirds? Guys, remember this, the rule of thirds is a suggestion only! We have short and long tail items that expand from this rule considerably. No rules are set in stone!)
At the end of the day, you are thinking margins, gross, net, and inventory. So many numbers are running through your head as to what inventory to carry, how much to invest, how much to take home. This is what we will be trying this month.
If we want to gross $3000 this month, we need to hit $9,000 in inventory. We are only at $4500 (a bit more) as of April 12th. So what are we going to do? SHOP. While we will not rush and clear out the clearance bin at any store, tomorrow will be our longest sourcing day to date. We will be going to look at all categories, and all items. If there is a barcode, we are scanning it. Expand outside of your favorite niche. If you live in the toy aisle, tomorrow head over to kitchen. If you love books, tomorrow just try and try household items.
Even more important, we will be clearing our “warehouse” out on Monday. No items will be left behind. If its in the house, its not selling which means spending the money on the inventory is pointless!
Leave your comfort zone, and make that inventory grow! More importantly get the inventory into the FBA warehouse!