In this article, we’ll take a look at two contrasting inventory models, and outline the pros and cons of each, as well as the model we prefer to use in our business.
So let’s dive in and look at the different inventory business models that you can use in your Amazon business…
What Are The Two Different Ways Of Selling on Amazon?
So what are the different inventory business models on Amazon?
There are a couple of different ways to approach selling by fulfilled by Amazon (FBA) on Amazon.
These two different options available are:
- Having a high SKU count with low markup (low margin)
- Having a low SKU count with high markup (high margin)
For those that may not know, a SKU stands for Stock Keeping Unit, which is required for each product that you sell.
The holy grail is to have a high SKU count, for example lots of products that are all performing well that have got good dollar margins and good percentage margins, so the key here is good markups and good margins.
However, bear in mind most people can’t start like that in the beginning.
TIP: Consider what inventory business model works for you and your Amazon business
Why Both Inventory Business Models Work!
That said, both business models absolutely work 🙂 However, bear in mind fewer products is much easier to manage than a wide range of products for all kinds of different reasons.
Generally, we prefer to sell less, i.e., a fewer number of products, but at higher prices with higher margins and higher markups.
It’s just easier to do this and less work. By doing that you also have less capital invested upfront normally as well. Basically you have less work for more money, that’s what it comes down to.
In this case, you’ll only deal with a handful of suppliers, maybe two or three suppliers if you have a small product line, as opposed to potentially a lot of different suppliers.
It’s a lot easier to manage your business cashflow, market your products, and a lot easier to track the performance of your products.
Therefore we are advocates of going after probably fewer products but having higher margins and markups on those products.
TIP: Bear in mind it’s a lot easier to manage your business if you have a fewer number of products selling with higher prices, higher markups and higher margins
Why You Should Be Positioned At The Top Of Your Marketplace
We also like to be positioned at the top of the marketplace, so we never ever want to get to a point where we are battling it out for the lowest dollar, as that’s not a good business model to use.
You want to be positioned as a premium product in your marketplace selling at a premium price, and ideally having a decent margin and markup on every single product that you’re selling. Therefore it’s better in our opinion to have fewer SKU’s, fewer counts of SKU’s, that are fitting that model, rather than having a whole heap of 50 or maybe 100 little products which you might only make $1 or $2 margin on each sale.
So that’s an important consideration from the outset because it’s going to ultimately determine what you’re life is like when your products are selling, for example how much work you’re going to have to do and how specialized your brand may be.
TIP: How much work do you want to have to do? Keep that in mind when choosing which business model to follow…
Further Reading
Success leaves clues… and winning products seem to fit into a certain criteria, so in the following article, ‘Critical Criteria For Finding A Great Product On Amazon‘, we’ll dive deep into what the ‘winning criteria’ is, and what to look for and what to avoid when identifying a product.
The first thing you need to understand is there is no such thing as a perfect product, our rules herein are really made to be broken! So take them with a grain of salt but try to take all things into consideration when you are searching for a great product on Amazon.
One of the best ways to uncover winning products, is to look at what’s ALREADY successfully selling, so in the following article, ‘How To Find The Best Products To Sell On Amazon By Going Shopping!’, we’ll take a closer look at online stores and offline stores, and we’ll also share a top-secret and very powerful ‘Shopify Intelligence’ hack…
Our Thoughts
In this article, we’ve introduced the two different inventory options available for selling by FBA on Amazon.
Whilst both business models absolutely work, give serious consideration to how much work you want to do. Bear in mind it’s a lot easier to manage your business if you have a fewer number of products selling with higher prices, higher markups, and higher margins.
Remember, you also want to be positioned as a premium product in your marketplace selling at a premium price, and ideally having a decent margin and markup on every single product that you’re selling.
By following the advice given within this article, you should have the correct knowledge and information to decide what inventory business model works for you and your Amazon business.
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Tehmina Zamir is a Content Manager at Blackbird Suite. With 5+ years experience in the multiple-niche industry, she writes action driven marketing sales copy to help millions of Amazon sellers grow their business at a rapid rate. She is also an author of Global Patient Transfer, Gooline Space, Healthwiz360 etc.