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Home Podcast Podcast Episode 005 : The Top 7 Amazon FBA Profit Killers

Podcast Episode 005 : The Top 7 Amazon FBA Profit Killers

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Nobody wants to lose money, but these 7 profit killers are stealing your Amazon FBA profits on a daily basis. In this episode, Rebecca and I talk to you about how you can recognize these profit killers and how to respond so that your Amazon FBA business is protected.

In fact, a few of these profit killers might even be Amazon account killers. We don’t want you to lose your account over something you don’t even know about, so be sure to listen to this episode of The Full-Time FBA Show.

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The Reseller’s Guide to Sales Rank

Sales rank is easily the most misunderstood aspect of selling on Amazon. What is a good sales rank? What does a sales rank of zero mean? What do I do with sales rank for sub-categories? Why does sales rank have to be so confusing so much of the time?

I’m here to tell you it doesn’t have to be that way! You can finally get the clarity you need on the issue of understanding Amazon sales rank numbers. We at Full-Time FBA have launched a mini-course called The Reseller’s Guide to Sales Rank: Understanding Amazon Best Sellers Rank for Maximum Profits. The mini-course is a combination ebook (30+ pages) and video course (almost 2 hours).

Check out The Reseller’s Guide to Sales Rank mini-course to see how you can master the concept of best sellers rank and be on your way toward smarter sourcing decisions for your Amazon FBA business!

Back to the main page for The Full-Time FBA Show

Episode Transcript:

Announcer:       Welcome to the Full-Time FBA show. In each episode, it’s our goal to help you turn part time hours into a full time income selling almost anything on Amazon. Now your hosts of the show, Stephen and Rebecca Smotherman.

Stephen:           Welcome, welcome, welcome. We are so excited that you are here for the Full-Time FBA podcast, episode five. We got lots of really cool things to talk about and, man, I just can’t wait to talk about them.

Rebecca:           Actually, I think some of the things we’re talking about today aren’t really cool. They’re kind of a bummer.

Stephen:           That’s true. They are a little bit of a bummer, but if you avoid doing these things, then things are going to work out a lot better for you. Sometimes, we have to talk about the negative and things that we need to be sure we avoid doing so that we don’t ruin all the hard work that we’ve put into our Amazon FBA businesses so that we can find that success that we’re looking for.

Rebecca:           Yeah. Be sure, if you haven’t listened to the previous podcast, episode four, that you’ve listened to that one because it is the positive side of what we’re talking about today. So we’re talking about things that will kill your profits today, but that last episode, four, was about things that will increase your profits. So be sure and check that episode out.

Stephen:           Yeah, so fulltimefba.com/podcast will get you to the podcast page where you can see all of our episodes listed there and find the ones that you can listen to. Or you can just go to your favorite podcast player and find episode four there. Let’s get into episode five now and the top Amazon FBA profit killers that will ruin your Amazon business.

Rebecca:           Okay, so talk to us then about, we’ve got about five or six different profit killers that we’re going to be covering today. Are these in any particular order?

Stephen:           No, not in any particular order. Just all of these you should avoid equally and they’ve got the potential of really taking away your ROI and waste a lot of your time, and take away your profits. So just make sure that you avoid all of these.

Rebecca:           Okay, so you gave me some notes before we started recording about the different profit killers that we’re going to be talking about. When I saw this first one, I remember asking you, do you really think this is just going to kill your profits or will this actually kill your Amazon account? So talk to us about what you have written down here as the number one, in no particular order, profit killer.

Stephen:           Well, that’s true. This one could really knock you out pretty big, and the strange thing is about this first profit killer, it’s one that is not really widely talked about. It’s one that can sneak up on you, but it’s a really important one to know and understand. So we won’t tease you anymore about what it is. The first profit killer that we’re talking about today is selling an item, a used item, but saying it’s in new condition. Now let me clarify and talk more about that, what that means. It’s so important when you’re selling items on Amazon to pick the correct condition of an item.

Rebecca:           When you’re listing it.

Stephen:           When you’re listing the item. That’s right. Amazon has their own definitions. In fact, you can go to fulltimefba.com/conditionguidelines to see Amazon’s guidelines for their conditions, because different categories have different specifics about how to properly condition an item. You just never ever, ever, ever, ever want a customer to say that you sold a new item, but it was actually used. In fact, Cynthia Stine, author of the book Suspension Prevention, says that that’s probably one of her number one complaints of those who have gotten their Amazon account suspended is they have way too many used sold as new complaints on their account.

Rebecca:           So what should you do to avoid this problem?

Stephen:           So the first thing is to check out those condition guidelines to see what they are. But you should definitely know that the definition that Amazon has for the word new does not mean not used. A lot of times people selling on Amazon come from the Ebay world, and sometimes things on Ebay will be sold as new, but they just mean it’s not used. Like, they will sell a board game that has the wrapping off of it, but it was never used, so they’re going to sell it in new condition. Well, you might be able to get away with that on Ebay, but on Amazon, if it does not have the original manufacturers wrapping on it, you cannot sell that board game in new condition. So, to take things even further, there might be boxes of, say you’re selling a toy on Amazon, and that toy, the box of that toy has a little dent in the corner or maybe it has some scratches on the bottom of the box from shelf wear.

Stephen:           Well, according to Amazon, that is not a new item. That is considered like new. That’s why there is a like new condition available for people to use because technically, the item is not used but it is somewhat damaged. So when you’re buying stuff in a retail store, even buying stuff via online arbitrage or even wholesale, if it’s delivered to you and the packaging has some scratches on it or a little dent here and there, you can’t really sell it as new anymore because a customer could think, hey, this is a used item. Again, getting that mark on your account that you sold a new item as used is a huge no-no.

Rebecca:           It’s good to keep in mind the customer expectations, because when a customer buys a new item on Amazon, they’re expecting it to be in pristine gift condition, gift quality condition. So, also as a seller, you need to keep in mind when you’re listing an item as new, there are not any condition notes, so you can’t say it’s new, but there’s a little dent in the corner. It’s new, but part of the packaging has been ripped. So if you can’t make those condition notes for a new item, it’s not new. You need to list it in a different used or collectible condition where you can make those notes. So that the customer knows exactly what they’re getting.

Stephen:           Right. Be sure that if there is any type of defect or dent or scratch or whatever, if you’re selling it as used condition or collectible condition, be sure you do put the those little notes in your condition notes to be able to let the customer know exactly what they’re expecting and exactly what they’re going to get.

Rebecca:           Okay, so used sold as new, that’s our first profit killer, and actually it could be an account killer if you aren’t careful and you get too many of these claims on your account. So talk to us then about what we have here as the second profit killer, negative feedback.

Stephen:           Yeah, no one likes negative feedback, but obviously if you get too much negative feedback, that’s going to kill a lot of your profits. The main reason why is because Amazon wants their customers to have the best possible customer experience, and they want to be able to have those customers work with sellers who are at the top of their game, who have the best feedback, who have the best seller metrics. So if you get a negative feedback, Amazon is going to tweak the buy box algorithm. I don’t know if you remember in episode number two we talked about the buy box, how to win the buy box and how to understand how the buy box works. But the more negative feedback that you have, the less percentage time you will have in that rotating buy box, and the less time you have in the buy box, the less sales you’re going to get. The less sales you get, the less profit. It is going to kill your profit if you get too much negative feedback on your account.

Rebecca:           Okay, so I guess a good followup question to that would be then how much negative feedback is too much negative feedback? Is one negative feedback going to hurt me? What about if I get a three, which is technically neutral on Amazon’s scale. The one to five scale. Talk to us a little bit about how much is too much and what those different numbers mean.

Stephen:           Right. So Amazon’s feedback system is set up on a one to five scale, and a customer can give you a one or two, which Amazon seem sees as a negative, can give you a three, which Amazon tells the customer is neutral, but in reality, Amazon calculates it as a negative, or a four or a five, which Amazon sees as a positive feedback. So if you get positive feedback, four or five, that’s something that you should be happy about. You know that’s something that is contributing to more sales and more time in the buy box. But if you get a negative feedback or even a neutral feedback, that’s something that, one to worry about. So first off, you want to see why they gave you negative feedback. Sometimes they give you negative feedback because of a reason that’s not even your fault.

Stephen:           Maybe they say the item didn’t arrive on time and you sell via FBA. Well that’s FBA’s fault and you can get that feedback removed. But when you’re looking at feedback, if they’re giving you legitimate negative feedback, you want to see what you need can do to adjust or pivot your Amazon business to be able to make sure that that doesn’t happen in the future. Now Amazon understands that people make mistakes, mistakes happen, and sometimes even customers can be kind of complainy. Is that a word? Complainy?

Rebecca:           Sure.

Stephen:           Okay. We’ll go with that. They can be kind of complainy and will give negative feedback for what you think is not a big deal. So, one or two feedbacks, three feedbacks that are negative, are not going to be a big downer for your Amazon business. It’s times when you have consistent negative feedback for a particular item or you have consistent feedback for all of your items that Amazon sees that begin to add up to be something that’s going to be negative for you.

Rebecca:           Okay. I think that answers our question then about how many is too many. So we’ve got used sold as new and negative feedback. Those are the first two profit killers. Talk to us about having old inventory. What do you mean by old inventory?

Stephen:           So this is something that is a sneaky profit killer. It’s one that we’ve forgotten about. It’s old inventory that is slowly chipping away at our profit margins. When you look at it, you see that this inventory has been there for four months, and so it’s being charged monthly storage fees every single month. If it’s been there over a year, it’s being charged long term storage fees. So sometimes the fees have totally wiped away all of your profits and you’re not being able to make any money off of this at all. So what you need to do is go check out your inventory, see what inventory items have been in stock for you too long, maybe that’s six months. I would think that by six months your inventory should have probably sold. Now the price might have gone down, you might have been holding on to your price hoping it would recover and it never recovered.

Stephen:           So the way that you help this is to just cut your losses and liquidate this item. Now if you look at the pricing and the sales rank history of an item and you see that you expect the price to recover, then you might be able to wait a little bit. But overall the best thing to do is to cut your losses and liquidate those items. Stores like Walmart do this all the time. They order too much of an item and the customers didn’t buy it, they clearance it out, they put it on the clearance shelf, and then we go and buy those items to sell them on Amazon.

Stephen:           But there’s times when we need to clearance out our items to make a loss, sell it at cost, whatever we need to do to be able to get that capital back, to put that capital back into items that will actually sell a lot faster. So sometimes we get a little too emotionally attached to our inventory, and we’re like, oh, I remember when I bought that and it was going to be really good, but we need to cut the emotions out and just liquidate our items so that we can get those in stock items out and so that that profit margin will not get chipped away even more.

Rebecca:           As you’re saying that, I’m thinking this is not just talking about killing your profits, but it’s the opportunity cost of keeping these items in your inventory and having that capital tied up. You’re missing out on being able to get that capital back by liquidating or selling at a lower price and then getting that capital in buying better inventory that you could then sell that inventory faster, reinvest it even faster, and increase your profits over time. Whereas if you had just left it there hoping that it would eventually sell, you’re losing money on it.

Stephen:           Absolutely. There’s another type of old inventory that’s also a profit killer in your Amazon business. We just talked about the in stock inventory, there is actually out of stock inventory that could also be a profit killer for you, in the fact that Amazon likes to come in and look at your current inventory. Even if you have a zero on the amount that you have in stock, Amazon still sees it in your inventory list. If an item becomes restricted or if there’s an intellectual property violation for a particular listing that you’ve sold in the past, but you’ve already sold out and even though you have zero in stock, you might still get flagged in your account for an intellectual property violation. If there’s a restricted item that’s been restricted, you might get flagged for your account for trying to sell a restricted item.

Stephen:           These are items that you’ve totally lost track of. You’ve sold, you don’t think about it anymore, but because it’s still listed in your inventory, even at zero, you still could get Amazon to ding your account, which will lower your seller metrics, which also, the seller metrics being lowered affect your buy box time, which affects your profits. So the way you fix this is to go through your account and see which items, maybe six months time has passed and this item has already sold. You’re not expecting it to be returned, you’re not expecting to restock this item. You can go in there and delete those items from your inventory so that they’re not listed there anymore at all.

Rebecca:           So basically you’re talking about just doing some inventory cleanup, not necessarily with inventory that you need to pull back from. This isn’t active inventory, it’s inactive inventory, but it’s still in your inventory list that you could go in and close the listings or delete the listings.

Stephen:           Right. Some people say, well, what if I find it later and I restock it in the future? What happens there? Well, it’ll just create a new MSKU, a merchant’s SKU number, and it doesn’t hurt you at all to have a new MSKU. If you actually do get a return in the future for an item that you listed before, it would just go into your stream of inventory and then you’d be able to create a removal order and be able to send it back in sometime in the future under a new MSKU. So there’s ways to fix those, but it rarely happens when any negative thing comes from deleting an item that you’re already out of stock of.

Rebecca:           Okay. So then let’s talk about what we’ve got down here for number four. Talk to us about outsourcing and how if you’re not outsourcing, that’s a profit killer.

Stephen:           Yeah. One of the biggest profit killers is definitely when you try to do everything yourself. Now, if you’re just beginning with an Amazon business, I totally understand wanting to do it all yourself. You want to make sure you know how everything works. You want to make sure that everything is done correctly and you have that thought, if it’s going to be done right, it’s got to be done by me. But the time comes that if you want to see real growth in your Amazon business, you’re going to have to start outsourcing. You’re going to have to start getting some help doing some of the things that are a little bit easier to do. The way to think about it is if anybody can do it, you should not be doing it, and so you should do what you do best and outsource the rest.

Stephen:           I think Jim Cockrum said that, and find people to help you, whether it’s finding family members that can help box up inventory for you and paying your teenage kid to help you do that. Whether it’s signing up for a prep center to have your inventory sent to a prep center, so they will prep it for you. Because again, anybody can prep a shipment, anybody can poly bag an item, anybody can tape up a box. Those types of things can be outsourced, and even though even sourcing can be outsourced, that might be one of the last things you want to outsource, but you can focus on doing the sourcing and finding more inventory. Because the less time that you spend doing what anybody can do, the more you’re able to spend time doing the really big profit makers in your business.

Rebecca:           So it helps me to think about it this way, because if you think about it initially, it costs money to outsource, you’re having to pay somebody. So it seems like that’s taking away from my profits, and so it’s not really intuitive to say that not outsourcing is a profit killer. So if you think about it, prepping an item, let’s say you’re paying somebody 15 or even $20 an hour to prep your inventory, and I’m just making a number up here, they prep a hundred items in that amount of time. Then think about what you could be doing during that hour instead of prepping. So you’re spending 15 or $20 for you to free up your time so that you can potentially be making two, three, four, $500 of profit by sourcing or doing something else more profitable in your business that requires you, as the business owner and the business manager, to be doing something very specific.

Rebecca:           So I think that’s a good way to look at breaking it down. I know when we first started looking into outsourcing, it was a mental leap for us to say, okay, we have to work it into our ROI per item that we’re going to spend x amount of dollars per hour to pay somebody to help us. Or, if we’re sending it to a prep center, we’re going to pay x amount per item to have it prepped. That’s a hard mental leap at first, but once you make it, for us, there was just no turning back. It freed up so much time and it allowed us to make more profits by spending that little bit amount of money.

Stephen:           Yeah, absolutely. If you are doing any type of minimum wage job in your Amazon business, then you’re working on the wrong tasks. You need to make sure that you’re doing the most important things, which for most of us is sourcing for inventory. So be thinking about that. If you’re trying to do everything yourself, you’re killing your profits.

Rebecca:           We understand that in the beginning stages you have to do everything yourself. It’s good too, to know what’s involved in all of those tasks. But we’re talking about as your business progresses, when you’re past those very initial beginning stages and you’re wanting to experience growth in your business and not just laying that foundation, that’s when you need to start looking at how can I outsource these tasks? Okay. So moving on. Looking at a piece of inventory when you’re going to source it, talk to us about how sales rank and price of that inventory can end up being a profit killer.

Stephen:           So when most people are looking for inventory, they’re wanting to get a really good ROI, they’re wanting to have the item have a high sales price, they want it to have a good sales rank. Sales rank shows that the item sells well, price shows that I’m going to make some good profits. But one of the biggest mistakes that people make, and is a huge profit killer, is that they’re only looking at today’s sales rank and today’s price. Here’s the deal, the sales rank on Amazon is updated once an hour. So that’s 24 times a day that the sales rank of items on Amazon change. The recent article shows that Amazon updates the prices of their items over a million times a month. That’s compared to, if you look at walmart.com, they might change their prices, maybe about a thousand times a month.

Stephen:           Amazon’s changing their price over a million times a month, and that’s not even counting third party sellers who have reprices, that are changing prices and they’re updating their price. Prices on Amazon are always changing. Sometimes the prices are going up, sometimes the prices are going down. So if you’re only looking at today’s sales rank, which changes 24 times a day, or today’s price, which changes multiple times a day, then you are missing out on making a good decision. You might be thinking, oh wow, this toy has a 100,000 sales rank. I’m going to buy 40 of them to sell on Amazon. But if you don’t look at the sales rank history, then you don’t know that that toy was actually ranked 1 million and it’s only sold once this year, and it just happened to sell yesterday, which is causing the 100,000 rank.

Stephen:           We can do a whole podcast on sales rank and tell you all about that. We’ll do that sometime in the future. But here’s the thing that you need to be sure you do. Look at sales rank history, look at the price history so you get an idea of over time what you can expect.

Stephen:           There’s a tool called Keepa that will show you the price history and the sales rank history of almost every single item on Amazon. So I can look at a six month time period or a year time period and see, oh, this price goes up and down a lot, but on average, it averages around 30 bucks. That’s profitable for me. I’m okay with that. Or this sales rank is averaging around 50,000, if you look at the year average or the last three month average and that’s good for me. Or you can say like, oh no, this item just sold two days ago and that’s why it has a good sales rank today, but I’m not going to get that item. I don’t expect that item to sell in another year or so. So, huge profit killer is only looking at today’s sales rank and today’s price.

Rebecca:           Yeah, Keepa is really a game changer when it comes to making sourcing decisions, because you could really think that you’re getting some great inventory and looking at Keepa data for that item can totally change your mind. Going from the current sales rank and price, looking at the historical sales rank in price, it really saves you from making some potentially very costly decisions.

Stephen:           Yeah, we’ve got some free training that you can look at on how to understand a Keepa graph. If you go to fulltimefba.com/5, that’s the podcast notes page for episode five, and we’ll have a link there for a free training on how to understand a Keepa graph and understand those sales rank and pricing histories.

Rebecca:           Okay, so this brings us to our last point and I’m looking at these notes that you gave me and it looks like the last profit killer is fleas.

Stephen:           Fleas?

Rebecca:           When I first saw it, I thought what? Fleas? But it says fears, so fears as a profit killer. What do you mean by that? Fears as a profit killer?

Stephen:           Well, one of the things that stops a lot of people experience any type of growth is their fears. They’re scared to do something, and the reason why they’re scared to do that is because they don’t have the right information or enough information to feel confident in doing something. So fear can impact almost every corner of your Amazon business and cause you to maybe not purchase enough inventory because you’re too scared that you’ve bought too much. Or you might be scared of selling used items on Amazon, and so you’re like, I’m scared that no one’s going to buy this, or I’m going to get a return or whatever.

Stephen:           So you miss out on the profit potential because you’re scared, or you might be scared to purchase a service that you might need to help you in your Amazon business because you’re afraid that it might not be worth it or something. So there’s a lot of fears that come at you that will steal your profits and that’s something that you need to overcome. But it’s one of those things that you overcome one by one. You don’t try to attack all the fears at once, but overcome those fears one by one. The way you overcome those fears is, anytime you overcome a fear, you overcome that fear with truth.

Rebecca:           Yeah, it’s amazing how knowing the truth really can change our feeling of fear. Once you understand the reality of a situation, it’s not as scary. We don’t want to make light of that, because there are legitimate things that we can be afraid of in our business. So we want to help everybody understand more about how certain aspects of a business, once you know the truth, there’s really not anything to be afraid of when it comes to that aspect of your business. We’ve put together a free Kindle book that goes through several of these different fears, fears of selling oversized items, fears of selling used items, fears of selling globally. So if you want to check out that Kindle book that can help you understand the truth behind some of these different potential fears that you might have in your FBA business, you can go to fulltimefba.com/fbafears, and that will take you to a free Kindle book that has some information that hopefully will really help you to overcome some of those fears and start increasing your profits in different areas of your business.

Stephen:           Yeah, we also talk about fears of going too deep on inventory items and even your fear of an Amazon account suspension, and so we try to tackle a lot of different fears by giving you the truth that will help those fears dissipate and help give you more confidence to take the next steps in your Amazon business, which will help you expand your inventory and expand your profitability with your Amazon business.

Rebecca:           Okay. I think that wraps up the profit killers that we were going to talk about today. Hopefully, these have been helpful ways to think about things that you may or may not be doing in your business that you can resolve and move beyond what you’re doing now. I know these have been issues that we’ve dealt with in the past and we’ve had to work through and see how we can tweak different aspects of our business so that we’re not losing money in ways that we could really avoid just by making a few little changes. So what’s our next episode going to be, Stephen?

Stephen:           So our next episode is going to be an interview with Chris Grant and we’re going to be talking about online arbitrage and the ins and outs of online arbitrage, which, the basics of online arbitrage is you go to an online store, you buy an item or two or more, and send that inventory to Amazon to sell. It’s an awesome opportunity out there for those of you who maybe don’t have retail stores around you, or maybe you do and you just want to also add another strategy to your Amazon business. So we’re going to talk with him about online arbitrage and I really look forward to that.

Rebecca:           Yeah, I’m looking forward to that too, because that is solely what I do right now is online arbitrage, so I’m interested to hear where that conversation goes.

Stephen:           Yeah, Rebecca does online arbitrage. I focus on retail arbitrage and wholesale, and so we’ve got all sorts of strategies that we’re going to continue talking about on this podcast with you about how we’ve been able to turn part time hours into a full time income with Amazon. If you’re interested in any of the resources or anything that we talked about today, check out today’s show notes, fulltimefba.com/5 forwards you to the page, the show notes that talks about all the things that we discussed today. It gives you a little bit more information and links to take a little deep dive into more about those topics. For more information about Full-Time FBA podcast, go to fulltimefba.com/podcast. We’re running a contest right now. If you go to that link, fulltimefba.com/podcast, you’ll be able to enter into our launch contest, have a chance to win cash and courses from us and all sorts of other goodies. So be sure you take advantage of that.

Stephen:           Then if this podcast episode has been helpful for you, we’d love a review. Go and leave us a review on iTunes and give us an honest review of what you think of the show and we will read every single one of those. So go leave us a review. We look forward to hanging out with you again on our next podcast. Thanks so much for spending time listening to us today and we’ll see you on the next podcast.

Rebecca:           Have fun working on your business.

Announcer:       That’s all for this episode of the Full-Time FBA show. So head over to fulltimefba.com/podcast, where you’ll find the show notes and links from this episode. While you’re there, subscribe to our newsletter where you’ll get several free downloads of our popular and helpful Amazon FBA resources, including a free ebook. Now, take action on what you’ve learned today so you can find success at turning part time hours into over full time income with Amazon FBA.

 

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About Stephen Smotherman

Stephen loves helping people turn part-time hours into a full-time income via Amazon FBA. When not reselling or blogging, Stephen enjoys reading with his wife Rebecca, playing games with his kids, serving at his church, and watching baseball.

Comments

  1. Lisa Adcock says

    Great basic info and reminders on issues you might forget about! I love how fear is explained as a profit killer. Having experienced fear from a variety of issues with my AZ business, I can totally connect with this. The truth, will set you free!

    Reply

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