At Forecastly, we have helped over 1,000 Amazon sellers take control of their inventory management. Many of them are in the top 1% of all sellers in the marketplace.
Given all of this experience, we figured it was time to share some of the wisdom we have gathered along the way. We analyzed our notes from working with these top Amazon sellers and found some striking similarities between the companies. Now we’re sharing their secrets publicly so that others, like you, can benefit too.
The similarities might not be what you expect. They aren’t crazy marketing secrets. They don’t violate Amazon’s Terms of Service. But they certainly do require some work. Each tactic can be implemented by an experienced Amazon seller to help grow your business. (If you’re new to Amazon, some of these strategies might be a bit advanced, but they’re great items to work toward as you gain experience.)
Let’s dive into the nine things that top Amazon sellers do.
#1. Segment Your Products Into Tiers
The best e-commerce businesses understand that not every product should be treated equally. The Pareto Principle (a.k.a The 80/20 Rule) tells us that
roughly 80% of the effects come from 20% of the causes. When selling on Amazon, this means that 80% of a seller’s profit can be attributed to 20% of their products.
Top sellers understand this paradox and focus the majority of their time and resources on these top 20% of items. They ensure that their safety stock is higher for these items. They add extra buffer into their lead time calculations for these items. They watch these Amazon pages carefully to protect them from slipping in the search rankings. They attack with force when a hijacker shows up on their product page with a counterfeit listing.
6 Steps to Capitalize on the 80/20 Rule:
- Identify which products account for the majority of your profit over the last six months.
- Arrange them in a list from highest profit to lowest.
- Adjust your safety stock calculation so that these items have a higher safety stock percentage. (Don’t account for safety stock? Take a step back and invest in software that can help.)
- Check on the replenishment dates of your top 20% products twice as often.
- Add about 25% extra to the lead time for these items.
- Develop a process to monitor these sales pages for counterfeit sellers. This is a good task for a virtual assistant – something we will look at further in the next section.
The key to running a successful business without too much stress is simplicity. Many people go into business online because they want to shape their life – flexible hours, an ‘office’ wherever you choose, and less of a day-to-day grind. The key to achieving all of this is working smart. Center your energy on the items that make you the most profit each month and optimize them. Don’t waste your precious time and energy on the lowest 20% of your products. It simply isn’t worth it. Many top sellers make most of their money from just one or two well-chosen and well-positioned products. You don’t need a wide range of products to hit great sales numbers.
You can better manage the top 20% of your inventory with an inventory replenishment tool like Forecastly. Forecastly was created to help you optimize your products by automating inventory management and making sure your top tier items never go out of stock. One of the biggest setbacks you can face is a complete stock-out. Sales stop, best seller rank (BSR) takes a hit, and it can take some time to recover after going out of stock. Forecastly can give you peace of mind by helping you avoid these losses and make reordering easier and less time-consuming.
#2. Optimize & Delegate Your Workload
As an entrepreneur, you get pulled in many directions. It is easy to get distracted by tasks that need attention throughout your day. Plus, as your business grows, so do the distractions.
How do you begin to focus on the most important things? They say you need to “work on your business and not in your business.” It sounds good, but how do you actually make that happen? Start by asking yourself throughout your day:
“If this was the only thing I did today, would I be happy with how my day has gone?”
As with inventory segmentation, the Pareto Principle can also be applied to your time. 80% of the day’s positive results come from 20% of your activities. Good books to read on this topic include The ONE Thing and Mastering the Rockefeller Habits. The most effective entrepreneurs focus their time on the activities that will lead to success. It is easy to get distracted by tasks that don’t drive us toward the end goal of growing the business. Focus on only those tasks that will bring you closer to your personal goals and dreams.
Here are five ways you can begin to focus:
1. Know How You Spend Your Time
The first step toward optimizing your time is to recognize where your time is being spent. What isn’t measured, can’t be improved.
Try tracking exactly how you spend your time using a tool like Toggl. Many people are surprised by exactly how much time they spend on “busy work.” Take a hard look at your daily routine and decide what tasks are your result drivers. That is the 20% that you should be entirely focused on. The other 80% should be systemized and delegated. You will even find that many tasks become unnecessary when you focus on your impact driving tasks.
Need help deciding what to delegate? Keep a Post-It pad nearby you while working. Each time a task comes up that can be delegated, write it down and add it to a collection on your wall. It can be helpful to put them into groups that are related, like Marketing, Financial, Customer Service, etc. You can also do this in a document on the computer, but the visualization on the wall is really helpful.
Comb through the Post-Its and remove any tasks that don’t need to be done. It is important to say “no” to unimportant tasks. Then, work out a plan to delegate the other tasks. If you’ve grouped the tasks into categories, you can get a quick sense of how much work is involved in each role.
2. Identify the Essential Tasks
How do you know which tasks are vital to your success?
Many entrepreneurs like to list their goals and then determine which tasks are critical to each goal. You need to identify what you’re working towards so you can build the road map to get there. Some like to think of each goal as though it were a project and build a Gantt chart. The critical path for a project typically unveils itself. In other words, you must complete the important tasks because the project can’t be completed without them. Ask yourself:
- Does this task directly lead to the achievement of my goal?
- Are there other tasks which can’t be started until this task is complete?
You’ll find that if a task has no dependencies, it tends to be the kind which can be delayed, delegated or even scrapped altogether.
3. Embrace the SOP
Once you identify the tasks that are essential to your success, write a Standard Operating Procedure (SOP) for everything in your business. Sounds daunting, right?
There are two big advantages to creating SOPs:
- You can more clearly define exactly what needs to be done for each task. This is useful whether you’re completing the task or delegating it to someone else.
- SOPs allow you to easily transfer responsibility with fewer questions and less back and forth over what needs to be done. If you hire additional team members, SOPs are a huge help for getting people onboard and up-to-speed quickly.
What is the best way for you to transfer information? Don’t like writing? Try screen recordings of your tasks and sending them to a virtual assistant (VA) who can write a SOP. Here at Forecastly, we record all tasks using Camtasia and then have a VA turn the video into a written SOP for all team members to use. One team member is assigned to the SOP and is responsible for editing the document once it is received back from the VA. Of course, you could also have recordings that serve as SOPs, especially if you are explaining how a software works.
Here are four elements to consider before getting started on SOPs that your team will actually use, as outlined by Sweet Process:
- Motivation- Know what drives your team members. How can you create processes which intrinsically motivate them to perform well?
- Different Mediums- Know the learning styles and preferences of your team members so that you can create resources that work for them.
- Written (paired with visuals)
- Big Picture Mindset- Keep employees on the same page as you by communicating the bigger picture goals of your business. Why do these processes need to happen the way they do?
- Ownership- Give your employees ownership of procedures so that they feel empowered to make decisions and put forward their best work.
4. Delegate, Delegate, Delegate
Your next question might be – Now that I’ve got my SOPs in place, where can I find the help I need?
Your hiring decision should be based on the tasks you need to be completed. Is a virtual assistant the right fit? You’ll find that there are VAs out there who can cover many different tasks, including some which require special expertise. There are other virtual workers who specialize in specific types of work like search optimization, ad campaign management, or product photography. Here are a few websites to check out for hiring help:
Tim Ferris, author of 4-Hour Workweek, provides some great insight about delegating. He explains:
By setting up a business in which every task is outsourced to an expert, you can make your involvement almost completely unnecessary. To achieve this, keep two things in mind:
First, everyone has to be able to communicate with one another without you as an intermediary. Don’t make yourself a bottleneck in any part of the process!
Second, delegate responsibilities. People can solve most problems without your help if you just let them. You’d be surprised at how smart people are once you ask them to take over certain responsibilities and make their own decisions.
Remember – don’t micromanage. It completely defeats the purpose of delegation! You need to maintain a good understanding of what’s going on and your team members should know that you’re available when needed, but don’t stifle them by frequently stepping in.
Successful Amazon sellers don’t just use delegation as a means to vacation. They use it as a tool for scaling their business. Delegating the right way frees you up to “work on your business” and focus on growth.
A further benefit is that your business becomes more attractive to potential buyers (should you wish to sell). Potential buyers want to see that there are systems in place that allow for scaling and ensure that the business owner doesn’t have to always have a hand in things.
Curious what typically gets delegated? Here are some of the tasks that other Amazon sellers often outsource:
- Customer service – e.g., responding to reviews or questions
- Updating product listings
- Monitoring and reviewing product listings – e.g., noticing changes in velocity, new competitors, or incidences of hijacking
- Social media and marketing activities
- Keyword research and optimization of listings or website (if applicable)
- Communicating with Amazon – e.g., inappropriate feedback that needs to be addressed
- Managing inventory, including orders and forecasting for holiday seasons
- Competitor research
- Product photography
5. Stay Organized
Yes, it can be nerve-wracking to delegate work. You’ve probably put a lot of blood, sweat, and tears into your business. (Well, hopefully not blood.)
The key to making it go smoothly is to get – and stay – organized.
Set up your team so that processes are streamlined and you don’t have any bottlenecks. Track tasks so that everyone can stay on point. There are many different tools on the market today, along with preferences and theories for how to best to do this. Choose something that suits your style. For example, check out:
These tools are only as good as the people managing them. You can’t simply set up a tool and expect everything to fall into place. Assign someone to monitor the use of the tool and ensure that everyone is staying on track.
#3. Inventory Replenishment Process
It is easy to get distracted by the next hot marketing tactic or finding your next best-seller, but you must maximize the profit of your existing inventory first and foremost.
Most sellers know that avoiding a stock-out is important, but only the largest sellers realize how important that really is. Optimized inventory management is one of the main differentiating factors between fast-growing e-commerce companies and those with stagnant growth.
Improving inventory management processes is one of those unsexy areas that slow-growth companies just seem to avoid making a priority. However, it’s one of the areas that can have an immediate impact on your profitability if handled properly.
Begin with a written inventory replenishment process. You need to know exactly how inventory ordering works within your company so that you can improve upon that process. Having specific criteria that you use during the replenishment process will also allow you to delegate the entire process – another positive move for scalability. Document all of the criteria that you use to reorder inventory so that it is easy enough to hand the responsibility over.
9 Criteria for Replenishment:
- Replenishment frequency per supplier
- Minimum and maximum order size for each supplier
- Minimum may be set by the supplier, but the maximum is typically based on your risk level
- Minimum Days of Inventory (DOI) or Days Until Reorder (DUR) replenishment criteria
- Determines “when” to replenish. This is good to have in black and white, particularly to avoid any confusion when delegating
- Safety stock size
- DOI to restock
- Minimum profit margin percentage or ROI. This is key to know – top sellers are always minding their margins and ensuring that they are worth the stock order
- Maximum investment per item. This helps you to avoid a “too many eggs in one basket” scenario
- Any additional criteria for each product segment/tier
- Higher lead time and safety stock for A-List products (top 20%).
- Any special requirements, such as protective packaging.
After you determine your replenishment criteria, focus on the details of the process you go through when reordering inventory.
8 Questions to Ask When Reordering Inventory:
- What should the Purchase Order (PO) include?
- Who should the PO be sent to?
- Does the PO need to be approved?
- How does inventory receiving work?
- What are the accounting steps?
- Where should the invoice be sent?
- How do you handle product labels?
- What’s the process for box contents, including box labels?
It is extremely important to build a routine when handling inventory replenishment. Having discipline around this process will help ensure you are maximizing the return on the products you already have in your portfolio.
Use the Right Tools
Using software like Forecastly will allow you to stay organized, automate routine inventory tasks, and make it easy to oversee team members assigned to inventory replenishment.
You need to ruthlessly prioritize your work time to concentrate on professional goals. Neglecting an area in your personal-life can be precarious, but everything other than your top priority can be negotiable in your work-life. At times you’ll need to avoid lower priority tasks and focus on what really matters. If your top business goal is to hit a certain profit level, then you need to concentrate on the core fundamentals of business like inventory optimization.
Be Prepared When Things Don’t Go According to Plan
If you’re dealing with the importing of inventory, it can be a perilous task even with the best-laid criteria, routines and replenishment processes. Talk to any top seller who imports products, and you will hear some kind of tale related to when things didn’t go as planned with a shipment.
There’s not always a lot you can do about it at the time, but you can do your best to have the right knowledge so that you’re (hopefully!) able to avoid certain situations. For example, learn the rules and regulations that are involved in what you’re shipping. You’ll be dealing with them both at the country of origin and destination, and it’s worth having a heads-up.
Many importers have come across situations where they thought a customs broker had it handled, only to find that they left out some vital paperwork or didn’t know about a certain rule. You can be one step ahead if you’re aware of the processes and are able to check up on them.
The short of it? Top sellers make sure they have intimate knowledge of the import process so they can create procedures around it.
#4. Track Your Supply Chain
As you grow, you realize that it becomes harder and harder to keep track of inventory at various stages of the supply chain. You forget about the order you placed two weeks ago for a big item. It skips your mind that you have a huge invoice that is coming due in a few days. You end up not reconciling inventory purchases due to the high volume of purchase orders. Each one of these scenarios can lead to expensive mistakes.
Reconciling each and every inbound shipment is part of the most profitable sellers’ routines. If Amazon doesn’t receive all of the inventory you pay for, then that is an additional cost that comes straight from your bottom line. The key to this process is staying organized.
This can be a lot of work – especially if you are talking about large, regular shipments. Top sellers usually do one of two things:
- Hire a third-party logistics company who takes care of the entire supply chain.
- Hire team members whose job it is to reconcile inbound shipments.
When you’re talking large orders, there’s the potential for thousands of dollars in missing inventory each year. It is often worth the investment in team members or logistics companies. Another good investment is to purchase the right software tools to help with reconciliation. Forecastly also features a shipment reconciliation tool which helps sellers to keep tabs on inventory at all stages.
Check on Amazon
It’s also important to check that the stock sent to Amazon is correctly reconciled. There have been many instances when sellers find that a lower number of products are added into their inventory than what was sent to Amazon.
This is found by checking on the reconciliation screen for the relevant shipment. If there is a difference, the first place to check is whether that difference is held in ‘reservation’ (such as for a transfer shipment to another warehouse). If not, a case can be opened with Amazon to query the missing inventory.
This is another task you can delegate to team members.
#5. Negotiate Supplier Terms
As you get started with your business, you are often forced to work with the demands of your supplier. These criteria include:
- Payment Terms
- Rush Orders
- Minimum Order Quantities
- Manufacturing Time
- Packaging Types
- Shipping Box Requirements
- Shipping Account
- Product Cost
As you get more experienced, you will find that most of the terms are negotiable and you should use this to your advantage.
Successful sellers realize that most of these terms are negotiable. Product cost is only one point of a negotiation. Having multiple negotiation points will help to make every negotiation go smoother. All of these other terms are important to running a successful purchasing process.
Take payment terms as an example. Top sellers have negotiated terms that are favorable to them and allow them to maximize their cash flow. Some golden-tongued negotiators have managed to nab 0% upfront agreements (especially if they regularly order very large amounts), but shooting for 30% upfront and the remaining 70% once the products have arrived in port is a pretty good deal.
Manufacturing time is something that you’ll really need to work with the supplier on. There’s that balance between “quick or quality” where ideally you want both. Top sellers tend to have more leverage to request faster turnaround times because the manufacturer is willing to work with their best customers.
Minimum Order Quantities
Minimum Order Quantities (MOQ) are often something that newer sellers don’t think to question. Manufacturers will post an MOQ for items, but there is almost always room to negotiate, especially if you’ve proven to be a good customer. Take advantage of this when you’re looking to try out a new product. You don’t want to invest in large quantities in case it doesn’t work out, so negotiate a better deal on a smaller order quantity.
Of course, one of the most important things you want from your supplier is a quality product. This will reduce your chances of product returns and the work plus loss of revenue they represent. It is highly recommended that you put in place quality checks and let your supplier know about them, so that you can ensure you are always getting what you expect.
David Bryant writes about the value of hiring third party quality controllers who inspect products before they are sent. One of the main benefits he feels, is to keep the manufacturer on their toes. They’ll be less likely to cut any corners if they know you’re in the habit of conducting quality inspections.
One of his biggest recommendations for ensuring product quality is to put together some criteria that must be met by the supplier. These might include things like criteria for the actual product as well as those covering packaging and labeling. Get all of this sorted out with the supplier before the first order of the product.
Find the Best Suppliers
You know what else top sellers do? They don’t leave it up to chance to find the best suppliers. One strategy they use is to analyze their competitors and figure out who it is that they are using.
Sellers can search by product type or brand to find suppliers with proven shipments that fit their needs, or find the suppliers used by their competitors.
#6. Strong Supplier Relationships Backed By Contracts
Maintaining strong supplier relationships is an essential part of every successful e-commerce business, especially on the Amazon platform. When you first get up and running, it may seem like the inventory sourcing process is as simple as placing an order with your chosen supplier. And while this may work out in the short-term, you will find that establishing strong supplier relationships is critical to finding long-term success.
A strong relationship with your supplier can be useful on both offense and defense. Here are two scenarios to consider:
Inauthentic and Intellectual Property Infringement Complaints
The experts at Amazon Sellers Lawyer regularly work with sellers who have been accused of intellectual property infringement or selling inauthentic products. While some of these claims are valid, many complaints are baseless and maliciously submitted by competitors. This is where a strong supplier relationship and underlying documentation become essential.
When a complaint is submitted to Amazon, the seller is instructed to directly contact the complainant to resolve the issue. This can be difficult (or impossible) because many complainants are unresponsive. Further complicating matters, disputes are resolved when the complainant sends a follow-up email to Amazon informing them that the matter has been settled. But what do you do when the complainant doesn’t respond?
Amazon typically responds to inauthentic and intellectual property complaints by suspending a seller’s account or their product listings. Both scenarios can be detrimental to a seller’s business. If a complainant is unresponsive and refuses to cooperate, a seller may appeal to Amazon’s Notice Dispute team to prove that their products are authentic and thus do not infringe on any intellectual property rights. The seller must write a plan of action and attach invoices to prove the authenticity of their products. Retail receipts are not typically accepted. Amazon requires supplier invoices to prove that the items were sourced directly from the manufacturer or a supply chain which originates with the manufacturer. This is where a strong relationship with your supplier comes in. It is essential that they are willing to provide the documentation that Amazon requires.
Need help drafting an appeal and getting your Amazon account reinstated? The team at Amazon Sellers Lawyer are experts at this process.
Strong Contractual Relationships and Amazon Exclusivity
Strong supplier relationships can work for you on offense too. As you begin to identify the top 20% of your products (think back to The Pareto Principle (a.k.a The 80/20 Rule)), you may consider becoming the exclusive Amazon seller for particular brands or products.
Amazon allows exclusive distribution agreements, but they do not enforce such agreements, so a strong contractual relationship with your supplier is critical. The goal of your exclusive contract is to close any loopholes that other Amazon sellers could take advantage of.
3 Tips for Exclusive Amazon Contracts
- When offering a product for sale on a pre-existing Amazon listing, the product must exactly match the listing. This includes labeling, packaging, warranty, edition, etc. Take advantage of a strong relationship with your supplier to create differences in your exclusive product packaging so other sellers cannot offer items that exactly match.
- Create an agreement with your manufacturer in which the manufacturer’s warranty will only be applied if purchased directly from you, the Amazon seller who they have an exclusive contract with. This works to your advantage because an item can only be listed as New on Amazon if the original manufacturer warranty applies, per Amazon’s Condition Guidelines. Therefore, a seller with the exclusive right to offer the product AND supply the manufacturer’s warranty should be the only seller permitted to list the product as New on Amazon.
- If you’re working with an international manufacturer or supplier, the relationship can be complicated if a dispute arises. Many of these overseas businesses are willing to violate agreements they have made with Amazon sellers because lawsuits are difficult to enforce. There is often no way for an Amazon seller to force a supplier to come to court in the United States or have a foreign court enforce an order granted by a U.S. court in their jurisdiction. As such, suppliers feel like they are immune to liability and have been known to create identical products for competitors or blatantly violate exclusive distribution agreements. Protect yourself by including the choice of law, venue, and jurisdiction in your contract. Require that any disputes with your supplier/manufacturer be resolved in their home state with those laws and jurisdiction applied. This provides you with the option to sue a supplier/manufacturer in their home jurisdiction.Foreign courts have become increasingly more cooperative in handling international disputes.
#7. Use Data to Manage Seasonality
Most sellers use a basic formula to anticipate how many units of an item they need to replenish when they get low on stock. The thought process is often:
“I sold 90 units in the last 30 days and I want to bring in another 30 days of inventory. Therefore, I should ship another 90 units to Amazon.”
More advanced sellers might include a weighted average. Occasionally, we’ll hear of some sellers who use a home-brewed regression formula to smooth out spikes in their sales.
These approaches work for many average Amazon businesses, but if you want to be part of the top 1% of Amazon sellers, then you need to do what the other 99% aren’t doing. And that’s the use of demand forecasting software that includes advanced seasonality tracking. Experienced Amazon sellers typically attribute the majority of their sales to the last two months of the calendar year. It’s important to utilize a replenishment prediction model that factors in this spike in sales. Mess up the 4th quarter and you could throw off your entire year.
Here are two important things you need to consider:
- Accurate forecasting is especially important for products with longer lead times.
- During peak times, Amazon will often impose a cut-off date for sending your inventory to the warehouse to ensure it is available for holiday shoppers.
Top sellers plan ahead. Dates are diarized and forecasting, including seasonal trends, is considered a key task. They are already looking in the middle of the year for what they think will be top sellers over the holiday season.
In addition to forecasting software, Google Trends is a free, helpful tool to take advantage of to perform some market research. Sellers use Google Trends to identify trends within their chosen category, including where people are searching from and which terms they are using. This information can be included in your product listings.
#8. Manage Cash Wisely
It’s no surprise that cash is king.
Unfortunately, most Amazon business owners don’t know how to properly manage their cash flow. And mismanaged cash flow inhibits the growth of one’s business – if it doesn’t put you out of business entirely.
Cash Flow is Important – Even if You’re Already Profitable
Inventory and cash flow go hand in hand. Inventory sitting on a shelf ties up cash and doesn’t make you money. Cash tied up in inventory is cash that cannot be invested in other products. At the same time, cash tied up in reserved Amazon payouts inhibits your growth. Services like Payability give sellers the ability to receive next-day payouts rather than waiting the standard 14 days for Amazon to release their funds.
The top Amazon sellers turn their inventory over more frequently so that they can make more profit from the same amount of cash. A reduction in your total inventory count also means less cash is required to operate. A reduced inventory count has two big advantages:
- If you borrow money for inventory, then this leads to lower interest expenses.
- Reduced inventory storage fees with Amazon
How do you better manage your inventory levels and working capital? Most top sellers used an inventory management software like Forecastly.
How Can Forecastly Help You Manage Cash Flow?
- Predicts cash flow requirements
- Considers distribution center warehouses, allowing you to hold inventory before sending it along to Amazon
- Classifies inventory
- Calculates safety stock numbers based on actual product sales and the importance of the product to your business
- Incorporates ROI in replenishment predictions
- Provides improved inventory performance based on a demand-driven algorithm that is more accurate than historically-driven software
#9. Virtual Freedom
Without question, a driving force behind many of Amazon’s top sellers is virtual freedom. They start their businesses because they seek more flexible and mobile employment than most traditional jobs offer.
How can you build your Amazon business enough to achieve that sought-after virtual freedom?
To begin, stop chasing every fad or shiny object on Amazon and focus on the time-tested growth strategy of inventory optimization. Even if you’re still juggling your Amazon business with another 9-to-5 job, instill good practices now so you can build your way up. The scale will come. If you do things correctly, you will be able to utilize the best tools and analytics, develop a team of skilled people, and negotiate strong supplier deals.
Wondering where to start? Work your way through the sections of this article and download the guides and templates we have provided. Start slowly. Check just one thing off your list, then move onto the next. It can only take a few small steps to make a big change. We hope to see you soon in that top 1%!