Return on Investment (ROI) is a really important concept to wrap your head around when you’re deciding how to structure your Amazon business. Concepts like the “rule of three” can be a good starting point to guide your decision-making process to help you receive 100% ROI every time.
During this episode, we discuss why it’s helpful to make room for 100% ROI, why it can be beneficial to try out different ROI percentages, and how lowering your ROI threshold will enable you to expand the amount of inventory you keep. These changes can all support your long-term success, and during today’s conversation we give you the tools to help you achieve it. We hope you join us and listen today!
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Key points from Episode 127:
- A definition for ROI: looking at a percentage of the profits that you make, compared to the buy cost of the items you are selling.
- An example of 100% ROI versus 20% ROI.
- What the rule of three means: if you sell a product for three times what you bought it for, you should (after Amazon fees) receive 100% ROI.
- The benefits of finding items that have room for 100% ROI.
- Why it can be beneficial to try out different ROI percentages.
- How lowering your ROI threshold enables you to expand the amount of inventory you have.
- How these decisions can help you in the long term.
- What to take into account when you are deciding on an ROI.
- How to calculate ROI on the fly using Scoutify or RevSeller.
- How to increase the number of inventory items you are selling on Amazon.
- And more!
Links and resources mentioned in this episode:
- Scoutify sourcing app (from InventoryLab)
- Top Features of the Scoutify sourcing app
- Special bonus for signing up for the free trial of InventoryLab
- RevSeller chrome extension
- Use the code FULLTIME to get $20 off your first year of RevSeller
- RevSeller video review
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Episode 127 Transcript:
[0:00:01.8] 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.
[0:00:21.5] STEPHEN: Welcome to episode number 127 of The Full-Time FBA Show. Today, we’re going to talk about what is a good ROI for Amazon sellers. Rebecca is with me today to talk about this, what’s up Rebecca?
[0:00:33.9] REBECCA: ROI, that’s what’s up, return on investment.
[0:00:36.5] STEPHEN: Yes, you know what? Return on investment, the money you get back from the investment that you put into your product and we have got different ROI comfort zones depending on your sourcing, skill levels and what you’re doing so we’ll break it down in this episode of The Full-Time FBA Show. What’s a good ROI? We’ll tell you.
[0:00:54.4] REBECCA: As we’re getting started here, we want to just give a basic summary, definition of what ROI is. Before we get into good return on investment, we just need to know, what is return on investment? How do you even define that?
The basic definition would be that you’re looking at a percentage of the profits that we make compared to the buy cost of the item that we’re selling. An example would be, if you buy an item to resell and you’re buying it for $10 and then you sell it and you earn a profit of $10, you bought it for $10 and you earned $10 once it’s sold, that would be 100% ROI, but if you only earned $2 of profit on that same item that you bought for $10, buy it for $10, earn a profit of $2 after it sells, that is a 20% ROI. 10 is 100% of 10 and 2 is 20% of 10.
That’s just a basic definition of return on investment and how you would calculate it and in this episode, we’re going to go through and break down then, what is a good ROI? What kind of number? What percentage are you looking for as a beginning seller, intermediate and an expert?
[0:02:05.6] STEPHEN: At the beginning stages of your Amazon business, most people are focused on sourcing garage sales, thrift stores and maybe some retail or online clearance sections and usually, well, especially with garage sales and thrift stores, you have super high ROI. I mean, you’re buying something for a quarter or a dollar and you’re able to sell it for $12, $40. I mean, that’s super good ROI. We’re talking 100% plus ROI is usually what you can expect when it comes to garage sales and thrift stores.
Now, when you’re dealing with retail and online clearance sections, a good solid ROI is around 100%. 100%, doubling your money and when you’re really beginning, it’s good to think of the rule of three. Rule of three basically means, when you’re selling on Amazon, if you’re able to sell the item at three times the buy cost, usually that means you’re making 100% ROI.
You buy it for $10, you sell it for $30, Amazon takes about 33% in fees and so, you end up making $10 on that. That’s a good way to think about it when you’re first starting out and beginning in those situations when you’re doing garage sales, thrift stores or maybe retail or online clearance.
[0:03:07.8] REBECCA: There are definitely some benefits of finding items to resell and focus on selling items that have this higher ROI percentage, a hundred or more percent ROI. When you find these types of items, you have more room to make mistakes and that just means more room to be able to lower your price if you need to.
If the price goes down from the time that you purchase it and send it in and are able to sell it, you’ve got room, plenty of room to wiggle around with your price and still make money off of it, even if you’re not making 100% ROI, by the time you sell it, you’re still making money.
It’s also just a great way to learn a new category, to make sure that you are getting items if you’re uncertain how that category works, how fast items sell within that category. Then as long as you have that wiggle room of a higher ROI percentage, you’ve got time to fiddle with your prices and make sales before you start getting impacts on your IPI or you start having more than one month’s storage fee.
[0:04:10.5] STEPHEN: Yeah, that’s the beginning, when you’re talking about first starting off, higher ROIs give you that comfort level, that cushion to make mistakes and it’s a great place to start but it’s definitely not a place you want to stay at.
When it comes to maybe an intermediate seller, someone who has had some months under their belt selling on Amazon and think about whatever ROI you’re comfortable with right now, begin to lower it a little bit and test out how things work.
There’s less wiggle room for mistakes and less wiggle room for lowering your prices but as your sourcing skills begin to get better and improve, then you won’t need that much wiggle room as you continue to test it out.
Testing it out, lower ROI, maybe 80% or 75, 60%, that can be really good to try it out, test it out and see how it works and go back and look over how things went or the successes were, what the failures were and what you can learn from that.
[0:05:01.6] REBECCA: Again, there’s some benefits to having this approach to lowering your ROI threshold just a little bit, the more you are improving your sourcing skills. When you’re at this intermediate level and you have some months behind you of sourcing and you start to think about lowering your ROI threshold, really what you’re doing, you’re not just lowering your ROI threshold, you are expanding the amount of inventory items that you’re able to buy.
You’re expanding your criteria, your sourcing criteria, which then will open up more items for you to be able to sell because previously, there might have been an item that you passed on because it did not fit your ROI criteria but now once you’ve lowered it because you’re more comfortable and you’ve got more sourcing capital and more experience, now you’re going to have more inventory items you can sell that item that you passed on before you’re not going to pass on necessarily.
When you have more inventory, you’re potentially going to see more sales and more profits, you’re going to start being able to sell a higher volume. That is an opportunity to gain even more confidence in your sourcing skills overtime. Expanding your criteria allows you to have more inventory to sell and more sales in profits.
[0:06:10.6] STEPHEN: As you’re getting that experience and getting more confidence in your sourcing strategies and sourcing decisions, then you can continue to work up toward expert seller when it comes to ROI and work on getting that ROI comfort zones lower and lower.
Yes, there’s going to be less wiggle room and room for mistakes, obviously, but as you are sourcing and your skills get more advanced and you become more comfortable with a lower ROI, again, it’s going to lead to even more sales and more profits as you’re selling more items and the rewards of making the right sourcing decisions at a lower ROI just helps you grow your Amazon business over time and it’s something that can really make a big difference.
[0:06:47.0] REBECCA: Yeah, just know that you can have different ROI comfort zones within different categories. This isn’t across the board every inventory item you buy is now going to be at 30% ROI because that’s not a great ROI for certain categories.
You might decide now that you’ve got a couple of years under your belt of selling on Amazon that you are comfortable selling books or toys that have a 40% ROI but if you are selling shoes or grocery, you might be more inclined to buy items that have like an 80% ROI level because of the way that those items sell differently in different categories.
Just know that the ROI that you get really depends on multiple factors within each category. A huge one of those is how fast the items are going to sell once they get to the Amazon warehouse. You don’t want to have an item that sells at 30% ROI that you’re going to have sitting at a warehouse for three months before it sells.
That is not a profitable use of your capital but if you had an item that was going to sit there for two months, three months and it was at a 150% ROI, that’s different. So take those things into account as you are making these decisions.
[0:07:52.7] STEPHEN: You might be wondering, “Well Stephen, how do I figure out ROI on the fly? I mean, when I am outsourcing, doing retail arbitrage or online arbitrage or even wholesale sourcing, how can I figure out what the ROI is, I mean, do I need to become a math wizard or have a calculator with me?”
[0:08:06.3] REBECCA: This is my fear when I first started selling and you started explaining these to me when you are training me and I am not that great at doing math in my head and I thought, “I don’t know if I can do this because I cannot do percentages this quickly” and so yeah, this really is a fear for some people.
[0:08:21.4] STEPHEN: It is definitely a fear that can be overcome, thanks to some tools. If you are out doing retail arbitrage, we use this sourcing app called Scoutify. Scoutify comes bundled with Inventory Lab and the cool thing about Scoutify is it does all the math for you and tells you what all Amazon fees come out and can tell you a percentage of what your ROI is going to be.
Not only that, Scoutify has an option for you to insert your own ROI requirements, what your threshold is, what your minimums are and Scoutify will tell you in the app with the little green thumbs up that this particular item that you just scanned has an ROI that’s above your minimum, so it is really cool to see that when you are outsourcing with Scoutify.
With online arbitrage or wholesale, we like to use the tool RevSeller. RevSeller is something that is a Chrome extension that just shows up on an Amazon page after you install it on the Chrome browser and it gives you profit calculators and tons of other tools but one of the tools is an ROI calculator, which will tell you what the ROI is at the current price.
You can play around with the price to see what the ROI levels are that you are looking for and so for both Scoutify and RevSeller, they help us make really good decisions in regards to ROI. I will put a link on the shownotes, the links to those tools as well as coupon codes that you might be able to use.
[0:09:35.5] REBECCA: Hopefully you’ve learned some new things about ROI or had some things confirmed for you, maybe you are coming up with a new strategy based on what you’ve heard here thinking about how long you’ve been selling on Amazon and we hope that you’re able to make some really smart sourcing decisions that will expand your criteria overtime for how many inventory items are possible for your business to be able to buy and resell.
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[0:10:34.1] REBECCA: Just as a reminder, as always, you can find the shownotes for this episode at fulltimefba.com/127 because this is episode number 127. Any links that we’ve mentioned in this episode can be found in those shownotes as well as the transcript if you want to read back over what we’ve been talking about.
[0:10:50.9] STEPHEN: Next week on the show, we’re going to be talking about something that’s even more important than ROI and that is ROTI, return on time invested. So we’ll breakdown Amazon reseller time management strategies for success next week on The Full-Time FBA Show.
[0:11:06.7] ANNOUNCER: That is all for this episode of The Full-Time FBA Show. So head over to fulltimefba.com/podcast, where you will find the shownotes 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. Now, take action on what you have learned today so you can find success at turning part-time hours into a full-time income with Amazon FBA.