"Build" Guide - how to Build your Private Label Business
There are many things that you have to take into consideration. You have to think of your lead time and everything that goes into it. Also consider receiving time at Amazon. It might take awhile for them to check it in. When planning a strategy for your FBA inventory, you should plan for the worst case scenario. There could be issues with it getting backed up at port or issues with your supplier.
A great thing about using software for forecasting, is that they can keep track of that, whether it’s Jeremy’s Forecastly or another piece of software. It tracks inbound inventory, current inventory, what you have in manufacturing, and true sales velocity.
You also need to consider spikes in sales. You may have consistent sales every day, but a couple times a month your sales spike. This is why you need to build in a safety stock. That gives you a cushion so that if you get a surge in sales, you have enough stock to cover it until your next shipment gets there.
Forecastly has many business that use its service. The software can then use this anonymous data to make predictions about Amazon as a whole. It takes ASIN level data over the past 30, 60, and 90 days to makes prediction about future sales numbers.
Their main focus is demand forecasting. It considers your recent sales including stock out periods. If you were out of stock, it can determine what you would have sold had the product been available. It also tracks the variability of demand which is something you can’t do in a spreadsheet.
The main thing you have to be conscious of when managing your FBA inventory is, what do you need to replenish, when do you need to replenish it, and how many units do you need to replenish. Forecastly tracks all that while monitoring your inventory and will recommend your orders.
Many sellers want to use a 60 day trend to determine their sales velocity which is a bad idea. If you selling in an upward trend, meaning your sales are growing, then your sales were much lower 60 days ago. This will make your average too low. Forecastly uses a 30 day trend to get the most up to date projections.
We, here at Amazing FBA, love a rule of thumb. Unfortunately, when it comes to FBA inventory, many sellers follow a rule of thumb that won’t help them, and could hurt them. It’s the idea that you need to have X amount of days worth of inventory. Whenever they place their order, they bring it back to this magic number.
For example, if you wanted to maintain 90 days of inventory and you order monthly with a 30 lead time. When it’s time to make an order, you have 60 days of inventory. Based on this, you would order 30 days of inventory.
You don’t need that much inventory. You wouldn’t need to order for another month because you have a 30 day lead time and you’re tying up cash in stock you don’t need. The rationale behind this method is security. The attempt to avoid stock outs by keeping a large amount of stock on hand.
Amazon will continue growing their own private label brands. So Amazon is now your competitor. International markets are growing. The European markets are booming. If you’re having success in the US, you’ll want to take those products to the UK and the rest of Europe. That isn’t as easy as it sounds. You have to come up with a separate replenishment strategy as well as deal with the tax regulations. There is an opportunity, though. Especially in Germany where 40% of the sellers are non-German, and very few are American. That means they are willing to buy from foreigners, but not many Americans are there yet.
As Amazon grows, the more warehouse space they will need. They are investing in new space, but they don’t want to overdo it. You will likely see seller-fulfilled-prime see some growth as a solution to this problem though will come with its own issues.
The inbound process is likely to change. It used to be that you would just slap on a UPS label. Then you had to also do the Amazon label. Now you have to do box contents. It’s going to get more and more complicated as Amazon continues handling more inventory.
If you want to receive a free tool for launching new products, head on over to Forecastly.
This is one of the biggest issues with Amazon inventory management. It’s something everyone deals with. Sometimes a product doesn’t as well as you expected. Once again, there is no crystal ball solution.
It might seem obvious, but one thing you can do is to look at it from a marketing perspective. Take a look at what you can do to improve the conversion rate. Can you improve your images or other aspects of your listing? Pay-per-click ads. It’s an investment. It will take time to perfect it. Is there anything else you can do as a last ditch effort to recoup your investment in the stock?
If you have already considered the marketing aspect, you could try a completely different route. You can wholesale it or sell it on a different channel. You’d be surprised how many people will buy lots of inventory on eBay other sites that will help you with that. There are sites that help you with bulk sales. You can work with a service that does flash sales, like touchofmodern.com. They will flash sales household products that are high-quality. If you want to leave it on Amazon, you could lower your price. Even if you take a loss on the sales, at least you’re putting money back into your pocket.
Proper Amazon inventory management is very difficult. You have to think long and hard and it really comes down to a plan. In the case of excess inventory, many sellers just go on a whim. One seller is dealing with excess inventory because they bought 3000 units of a product they’ve never sold before. Their main reason was that they got a good cost on them at 300 units.
The cost isn’t as important on that first order. You’re really trying to prove the product is viable. Then on your second order, you can get the cost right once you know the product will sell. It might be difficult for a first-time seller since your money is tied up but you’re not making much profit. However, you are lowering the risk if the product doesn’t take off.
One tactic that you might consider is ordering small amounts of several different products knowing you are likely to run out. Then you can see which one takes off. This isn’t a great strategy. If you find a good product that takes off, you will jump in the sales rank. Now you have a high ranking product with no inventory. Let’s say it sells out in a week but you have a 45 day lead time. Now you’re going to be out of stock for 45 days unless you can negotiate with your supplier and spend more money to have it expedited.
One issue you might run into is a minimum order quantity (MOQ), where suppliers will require a large order otherwise they won’t accept it. You can try to negotiate with them saying that you will be ordering from them for awhile, but it’s company policy that the initial is smaller.
Amazon inventory is a crucial but neglected area for all Amazon sellers. We have Jeremy Biron with us today. He’s the founder of Forecastly. He has been selling on Amazon for over 10 years so he has a really deep understanding of the marketplace and of Amazon inventory management and the issues that can involve.
He was one of the first FBA sellers in the office supply space running a multi-million dollar operation. Jeremy has a strong knowledge of Amazon and what it takes to maintain your Amazon inventory.
Coming out of college about 15 years ago, Jeremy was working in the corporate world doing marketing and sales. Quickly realized that the corporate life wasn’t for him. He got into selling Amazon inventory part-time while working the corporate job. He happened upon office supplies. Not the sexiest products but he found a place. He realized that he could make more money selling on Amazon than in his full-time job and he enjoyed it much more.
He started selling full-time 8 years ago. Then, about 2 years ago, the office supply space wasn’t going in the right direction. He heard from a lot of other FBA sellers about their Amazon inventory issues. Jeremy had the answer. He had custom software they used in-house. He decided to take this software, improve it so it could be mass-distributed, and began Forecastly.
It was a combination of stock-outs and excess Amazon inventory. At first, they were just using the reports you get from seller central. It shows how much you have in stock and how much you sold in the past, like 30 days. It would be 30 days later, after he had placed all those orders, and looked at his profit and loss and think that he should have sold more. As it turns out their estimations were off. He knew from the beginning that using the inventory reports from Amazon wouldn’t cut it.
A lot of the time, those aren’t accurate. Looking at your current Amazon inventory and your inbound numbers. You inventory is usually right, but your inbounds number aren’t. They didn’t know exactly what was going into Amazon. What status was it in. Even looking at your existing Amazon inventory, you can’t tell if it’s being labeled, is it moving around the country, or is it reserved because it’s already been sold. If I have 100 units, and 10% has already been sold, I really have 90.
The other piece of it is figuring out your sales velocity. That’s not as easy as many people think it is. Let’s say you sold 50 units last month. If you don’t know if you were in stock the entire time, your don’t know your true sales velocity. If you sold 50 in the last 30 days, but you were out of stock half that time, you should have sold 100. However, those reports are saying you sold 50, and if you want a 30 day supply, you should buy 50 more.
The last piece to this is taking that demand forecast and building a replenishment strategy off it. Knowing when you’re going to run out of stock.There isn’t an Excel spreadsheet that will tell you if you’re going to have a spike in sales. The only way to do that is by using a database and running some crazy statistical calculations.
This is something Jeremy sees a lot of mistakes with. Even if you’re an experienced private label seller and you’re bringing out a new product. It’s tough trying to figure out how much to order. Some things you want to think about when releasing a new product
You want to consider payment processing. Your money doesn’t show up immediately. Sometimes it takes a couple days to process your payment with the bank. The suppliers won’t do anything until that payment processes.
How long will it take for the factory to actually make the product. Is it going to be reliable? Will it take the length of time they quote you.
Preparation of shipping. If you’re placing a large order, it’s going to take time to process that shipment. Then sea or air time. Then is has to come through customs. There can be a lot of delays here. Then is has to be sent to Amazon where it will sit on their dock until they can receive it. If you send it to your house first, or a third-party preparer, all that takes time.
People will underestimate their lead time, and throw off the whole process. That goes for existing products as well.
Just to underline how important this is, it will always take longer than you expect. If a factory quotes you 2 weeks, it will likely take longer. They will tell you what you want to hear. If you send it to a prep facility, it could sit there for 3 weeks. Don’t underestimate receiving time at Amazon if it’s around Christmas or other holidays.
In terms of reality, it’s going to come down to you putting some pressure on them. Communication is key. Contact them saying that you’re going with them. You like the communication so far. How likely do you think we’re going to hit that three week mark? Should I account for an extra week in there? They’re people too. It will put them at ease knowing that they got the order and don’t have to tell you what they think you want to hear. There really isn’t a magic formula because each supplier is different.
You can add in a late delivery penalty. Let them know that it’s your company’s policy that there is a 10% penalty for every week past the deadline. You see this difference between new and veteran sellers. If you ship an order to Amazon and it’s late, you’re going to be hit with a charge-back. This is also dependent on your payment agreement. If you pay everything up front, you can’t go and take that back. Whereas if you make a partial payment before delivery, it’s a bit different.
The main point is to get a straight answer out of them. They are likely to be more honest if they will get less money if they try to be overly-optimistic. Most terms I recommend is 70% up front, and 30% balance.
One point Jeremy wanted to make sure to hit on is about new product and why lead time matters. It’s not lead time for your first initial order. It’s thinking ahead to your next order. Let’s say your very first order arrives today and you have a 45 day lead time. Now you have to think about your next order. If you didn’t order enough units to get through 45 days, you will run out of product. Even if you place a PO today.
You don’t want to place another order for 30 days. If you have a 45 day lead time, you have to order enough for 75 days of inventory. You don’t want to over-order inventory, but you really don’t want to run out. There are a lot of sellers that always order 100 units, or 1000 units. They’re just making up a number. Jeremy recommends looking at JungleScout. If you’re shooting for a rank of 10,000 in the office products category, you can look on JungleScout and estimate how many units you’ll sell in a day.
Exactly. They have a free Excel spreadsheet that you can get at forecast.ly/amazingfba. It’s a simple sheet that tells you what your lead time is, and when you’ll want to place your next order. The last piece on top of that is safety stock. That is a complicated thing so we won’t go into too much detail. Essentially, it’s insurance against a stock-out. If you think you’ll sell 10 units a day for those 75 days, then you’ll buy 750 units as your initial order. Depending on your level of cash, you’ll bump that up. You may want 10% safety stock. So you’ll add 75 units, just in case sales are higher than expected.