When you’re starting out on your journey and selling on Amazon, one of the first questions you should ask yourself pertains to the amount of inventory you will need for Amazon FBA.
It’s no secret that Amazon operates one of the most advanced fulfillment networks of any online retailer in the world. It’s also no secret that Amazon works with third-party sellers.
In fact, just last year alone, almost half of all sales conducted on Amazon came from third party sellers. And on top of this, two thirds of these sellers were using the FBA platform.
The short answer to the question of how much inventory you require for sending inventory to Amazon FBA is that there is no minimum (other than storage limits).
Note: You can always get around this by using a 3PL (third-party logistics) company to drip feed your products in to Amazon.
This means that, hypothetically, you could send in just one unit and in reality, this is often done by people wanting to test a product.
This does mean that they will see an increase in overall shipping costs and a reduced profitability, but this is in the short term.
However, there are some important things to consider when planning on sending inventory to Amazon FBA. We’ll discuss some of these and more in this article. So if you’re planning on utilizing Amazon FBA, read on to find out more!
Consider The Risk
This is arguably the golden rule of good business practice – look to reduce risk by finding asymmetric risk/reward opportunities. In other words, you’re looking for higher potential reward for lower potential risk.
Selling a good product and investing in inventory is typically a sound asymmetric risk, in our opinion.
However, there are caveats to this. One being that if you purchase too much inventory, you’re increasing the risk side of the equation without increasing the potential reward enough to financially compensate for the increased risk.
This is counterintuitive to an asymmetric opportunity.
So this begs the question, when looking at inventory for FBA, how much do I need? The answer is generally between 300 and 500 units. This usually is around the Minimum order quantity (MOQ) for whole sale manufacturing companies you will find on Alibaba.
Some of the best private label-type products selling on Amazon retail at $20 to $50. The per-unit cost of these products is between $5 to $15. This places your total inventory risk at between $1,500 and $7,500.
There is a high possibility that you’ll run out of stock, which is never ideal. On the other side of that coin, if you have too much inventory, you’ll have too much of the wrong product.
Consider Quantities of Inventory For An Amazon Launch
Any new seller on Amazon wants to achieve the following on launching a new product:
- Achieve strong organic keyword rankings
- Order more inventory
- Never run out of stock to avoid relaunching the product
Sadly, this is very rarely, if ever, achieved. Everyone, particularly newcomers, run out of stock. Taking the above into consideration, this isn’t the end of the world and is almost expected.
The following is a hypothetical example we use to demonstrate ordering the right quantities of inventory for a successful Amazon Launch:
You launch a product and sell 5 units a day in the first week, amounting to 35 units. From your launch campaign, sales pick up to 10 units a day for the next week at 70 units total. In two weeks, you’ve sold 105 units (35 + 70).
At this point, you’ll want to consider reordering to prevent you from running out of stock. It takes 5 days to place the order and submit the payment. Then it takes 30 days for manufacturing, plus another 40 days for shipping and processing into Amazon FBA. That’s 75 days total (7 + 30 + 40).
During the time period, you’ve maintained an average sale of 10 units a day, so to remain in stock you’d need an extra 750 units to remain in stock throughout the reordering process (75 × 10).
Taking into consideration your first two weeks of sales (105) you’ll have needed to order 855 units (105 + 750) before launch so as not to run out of stock.
As mentioned, products tend to cost between $5 to $15 per unit, so with the above amount of units and this $5 to $15 price window, you would need to spend between $4,275 and $12,825 upfront.
As you might expect, most newcomers would not be willing or able to invest these sums upfront for their first product launch on Amazon.
That’s why the recommendation of 300 to 500 units is best, as mentioned in the first section, despite the fact that you’ll likely run out of stock.
Consider How To Work Out How Many Units You’re Likely To Sell
This is a tricky thing to consider, especially if you’re going out on this venture alone. That being said, the first factor in addressing this point is how well you launch the product.
Following a sound launch strategy translates to selling a lot of products, which makes the reverse true too.
The second factor to consider is the selling power of the product. However, this is relatively simple to figure out.
There are a number of Google Chrome Extensions which allow you to get a rough estimate of sales of virtually any product on Amazon.
Consider What Happens When You Run Out Of Stock
Despite the fact that you’ll need to relaunch the product, running out of stock isn’t the worst thing that can happen.
However, there are some financial consequences of running out of stock, namely cash back offers like free product given away to get rankings, and probably some needless ad spend.
The fact that you won’t have a second ‘honeymoon’ phase of being a new product on Amazon will also work against you.
It almost goes without saying that your product will be more profitable if you do not run out of stock (and succeeds).
That being said, the risk of a new seller picking the wrong product is very high. Running out of stock is preferable to needing to liquidate hefty amounts of stock. It also translates to your initial risk being lower.
Whilst there is no minimum inventory needed to send to Amazon FBA, it’s highly unlikely that you’ll be sending just a few units to Amazon initially.
That being said, we’ve tried to aim this discussion towards newcomers to selling on Amazon and those wanting to turn a profit on the platform.
The initial proposal of ordering 300 to 500 units to start selling on Amazon is based on the assumption that you’re selling a standard private label product, which retails for around $20 to $50.
Naturally, if you’re selling a more expensive or cheaper product, this inventory figure might not be the same.
So, to put it simply there is no right answer to how much money you need for Amazon FBA.
After all, Amazon FBA does not provide a minimum figure, so the number that you select will depend on a number of factors. However, if you want to find out more, check out the guide above.