If you’re looking to grow your Amazon book business this year, there are three metrics that you should measure and manage on a weekly basis. Can you guess what they are? I’ll give you a hint – none of them are your total sales figure from Seller Central!
Sure, it’s important to grow your top line, but at the end of the day your bottom line is all that matters: i.e. how much profit did your business generate? Focusing on the top line only could lead you to fall into the vanity metrics trap. Eric Ries offers this definition for vanity metrics: “They might make you feel good, but they don’t offer clear guidance for what to do.” It’s easy to post a screenshot of your Amazon sales on social media and feel good about yourself, but are you actually generating a healthy profit? There are plenty of 6- and 7-figure Amazon businesses that barely earn a profit at the end of the day.
Let’s take a closer look at three metrics you should track to improve the bottom line of your Amazon business.
Metric #1: Number of books listed each week
This isn’t much of a secret, but if you want consistent sales, source and list inventory on a consistent basis. You may have a large inventory of 2,000 books, but if you haven’t sourced in a few months the inventory is going to get stale quickly and your sales and profits will suffer.
My own journey into bookselling started with a simple challenge: could I source 100 books a week? I started this challenge in late 2014 as a side hustle, and by the end of 2015 I was able to quit my day job and pursue reselling books full time. By mid-year I was averaging closer to 200 books a week, and by the end of 2015 I was consistently sourcing 300 books a week.
Your goals may not include quitting your day job, but if you’re looking to pay off debt or save up for a vacation, consistent sourcing will help get you there faster. So set a goal and work hard to achieve it – whether that’s 25 books or 250 books each week!
Metric #2: Inventory turn rates
Once you’re consistently sourcing books, you’ll need to monitor the QUALITY of your inventory and your pricing strategies. This can be done by looking at your inventory turn rates. Although this may sound intimidating at first, it’s actually fairly simple. Your turn rates are a fancy way to say, “What percent of my inventory did I sell this week?” If you sold 50 books last week out of an inventory of 1,000 books, your weekly turn rate would be 5%.
What’s a normal weekly turn rate? It can vary widely, especially if your inventory is comprised of mostly textbooks. We did a survey of two dozen booksellers and looked at their detailed metrics, and came up with an average turn rate of 5% per week. Those numbers ranged from 3% – 6% for most weeks throughout the year.
If your own turn rate is low – i.e. under 3% on a consistent basis – you may need to try one of two things:
- Source better-ranked books – if you are sourcing too many long-tails (i.e. super high-ranked books), they may be clogging up your inventory and not selling often due to low market demand.
- Revisit your pricing (and repricing) strategies – if you are sourcing books with decent ranks and they aren’t selling well, you may be pricing them too high. A solid pricing strategy should balance turn rates with profitability. If your books aren’t selling, you’re not going to generate any cashflow to invest in buying more inventory.
A few additional comments to keep in mind:
- Don’t get too bent out of shape on your turn rates if you’re just starting out. Selling 2 books out of 100 is a low turn rate, but it’s a small sample size. If you have 10,000 books in inventory and are only selling 200 per week, you may want to revisit your sourcing and pricing strategies (see above).
- These turn rates are taken primarily from FBA sellers. If you’re a Merchant Fulfilled seller, your turn rates may very well be higher than 5% per week. Why is that? It’s easier to reprice MF inventory since repricing software can “see” more data points from Amazon than if you’re selling FBA, since ~50% of books don’t even have an FBA offer visible in the API (i.e. the lowest 15-20 offers).
- If your turn rates are abnormally high, there’s nothing wrong with that! You may want to see if you can raise your prices a bit and try to balance out turn rates with profitability though. Each business has different goals and cashflow needs, so find a strategy that works well with your particular business model.
Metric #3: Average sales price (ASP)
The higher your ASP, the more money will wind up in your bank account – it’s as simple as that! If you are selling cheaper books, Amazon will eat up a larger percentage of the sales price with their FBA fees.
Here are a few examples, looking at a typical book that weighs 1.3 pounds:
Sales Price = $10.00
Profit after FBA Fees = $1.99
Margin = 20%
Sales Price = $20.00
Profit after FBA Fees = $10.49
Margin = 52%
Sales Price = $30.00
Profit after FBA Fees = $18.99
Margin = 63%
If you sell $100,000 worth of books with an ASP of only $10, Amazon will deposit roughly $20,000 into your bank account. That’s a lot of work for a small paycheck. Now, if you are in the bulk business and have systems in place to source and list mountains of $10 books, this can be a viable model. If you are in the cherry picking business, however, you should do your best to source higher-value books to maximize your efforts. Compared to the example above, if you can cherry pick $20 books and sell $100,000 throughout the year, Amazon will deposit roughly $52,000 into your account – which is much more efficient if your business model allows for it!
In our survey of FBA booksellers, the cherry pickers had an average ASP of $19.72 throughout 2017. One bulk seller averaged $8.15 for the year, and an online arbitrage seller averaged a whopping $55.06! How do you stack up? You will find fewer books if you only source more expensive titles and leave cheaper books behind, but your bottom line will thank you! Again, your business model may vary a bit, but if you want to run a more efficient operation, find ways to spend less time selling inexpensive books. (Note: I’ll dig into my own metrics in a future post about the 80/20 rule, but I can say from experience that selling fewer $10 books has made a vast improvement in my bottom line, and I have more time to spend golfing or traveling as a result.)
One final note about measuring your ASPs – these metrics can vary WIDELY from week to week, especially if you sell a few expensive books in a given week. Don’t get too caught up on the weekly figures, but certainly monitor your averages over time to see if you can source and sell better books.
Bonus Metric #3.5: Buy cost
I’m hesitant to offer a fourth metric here, but it’s worth noting that your buy costs play a large role in your bottom line. If your ASP is $20 and you are spending $8 per book, there’s not much of a margin left over after you factor in your cost of goods sold. If your ASP is $20 and you are spending $1.50 per book, now that’s a pretty healthy business!
The reason I’m hesitant to mention buy costs is that many sellers shy away from expensive books. There’s a chain of thrifts in the Denver area where books cost roughly $3 – $8. I love hitting up these locations because many resellers refuse to pay more than $2.50 for books, so their inventory is usually less picked over than the cheaper thrift stores in the area. Don’t be afraid to pay up for quality books – especially because that can help drive up your average selling price as well.
Yes, buy costs are important to your bottom line, but don’t focus too much on them that you miss out on buying better books.
Consistency in business is a beautiful thing, and is often rewarded over time. If you consistently source books on a weekly basis, adjust your pricing strategies to improve your turn rates, and focus on selling more expensive books, your cashflow and profit margin will certainly improve over the next few months. Selling books is not a get rich quick scheme – it can take time to build a sizable inventory of quality products. If you manage these three (and a half) metrics above and work to fine-tune them, your bottom line will certainly thank you!
If you’ve followed me for any length of time, you’ll know I have an unhealthy obsession with speadsheets. I’ve built one that you can use to measure and monitor your key metrics on a weekly basis, simply by plugging in the variables we discussed above.
If you’re just starting out, this spreadsheet is a great tool to help set your weekly sourcing targets to see potential sales and profit figures for the first few years of your business. If you decide to start your own weekly sourcing challenge, drop a note in the comments below to share your goals and we’ll help keep you accountable!