When I was heavily into ebay, I wanted to get my product up and sold with as much profit as I could, in the least amount of time. I wanted quick inventory turn. As I started to dabble with amazon FBA, I started to learn about long tail sales and how I should be using them. So what exactly is a long tail sale, and why would I want to use it? Let's dig a little deeper into this, shall we?
So what is a long tail sale? Long tail refers to an item that you sit on for an extended amount of time. Think of a house or a car, big ticket items. Most generally, these items take time to sell because of their price point. The more expensive something is, the longer it takes to sell it. Conversely, the cheaper something is the quicker it sells. This is a normal sales cycle, and all retailers know it. When they have long tail items that have exceeded their threshold for acceptable time frames, they will run a sale to try and move the inventory. The key is knowing what to buy and how long to hold it.
My strategy for long tail sales is fairly simple. The longer it sits, the more I need to make. Let's take a look at a text book as an example. Text books are generally only going to sell really well twice per year. Text books will generally have a high resale amount. So you look at a text book and see the rank is 3.5 million. Not such a good rank, and most people would pass on it. It indicates a slow moving item. Now let's dig a little deeper on this book. We see that we can purchase this book for $1.99 at a thrift store. We know the rank, and we can see the selling price right now is at $129.95. Now the trick is knowing if this price is going to remain steady, drop or increase as text book season begins. More than likely it will go up. So for a $1.99 investment, and maybe 5 or 6 months of waiting, I get a hefty profit on that buy. Not too shabby considering storage fees on a book is fairly small.
Now take another item you purchase for $1.99. Rank is 1 million, and the current selling price is $14.95. Is this a good long tail candidate? Most likely not. Unless it is a very small, lightweight item you are going to rack up storage fees that will start eating into the profits on this item. FBA fees on this item are going to be at least $4 at a minimum, and probably more like $5. So take out your initial cost, the FBA fee and you are left with $8.96. If your storage fees are $0.60/mo, and it sits for six months, you are now down to $5.36. Take out the cost of FBA stickers and inbound shipping fees and you are down under $4 profit. Go over 6 months and you are going to get hit with long term storage fees and now you are probably under $3 profit. Not so attractive now is it?
You really need to understand your sales funnel as it pertains to your profit/loss. You have to know what your fees are going to be the longer something is going to sit in the warehouse. Amazon is really a numbers game, and with a few exceptions it is also a quick turn game. People who can turn inventory very quickly are the ones who generally do very well. The other segment that does really well are those who can afford to play the long tail game. I know sellers who only buy long tail items and are willing to wait a year or two for a payout. How they manage it is they have a huge inventory. Eventually enough time passes and these items start to hit their sales time frame and they will have huge profits on almost a daily basis.
With ebay, it's a little different ball game. Long tail still works, however you are now dealing with storage limitations. Ebay is another venue where people want in and out with a quick inventory turn. The same rules are going to apply for the most part, it's just a different angle. Ebay is going to charge a fee for listing the item. Even if you have a store, the cost is divided by your monthly store allocation. With a premium store, it is costing you $0.06 each time you list the item. Not a huge cost, but an expense nonetheless. My question is always "can I afford to use the shelf space for this, or can I get more inventory for the same money"? I also look at how much alternate inventory I can buy with the cash I am going to tie up into this item.
An example is a pair of designer shoes. When I sold shoes I would look at a pair of shoes I could buy for $89. Now my normal channel for sourcing would have shoes in the $5 - $10 range. So now I have to figure out if the profits on that $89 pair of shoes was going to exceed the profits I could make on selling 8 - 10 pairs of the lower priced shoes. Let's say my average sale price on the lower end shoes was $24.95. After all fees, I would have a profit of about $10 - $13. Multiply that by say 8 pairs of shoes and I have a profit of between $80 and $104. So now I know I have to sell these $89 shoes for at least $200 in order to make the same amount of profit. Not only that, but the lower end shoes are going to sell in a month or two where the higher end ones may take 6 months. Which is the better deal? For me, the lower end shoes. If I were to buy the higher end shoes, I would want to sell them for at least $275 to make it worth my while.
If you can stomach the wait, and the amount of cash investment you are going to be hanging out for a year or two, then this may be a great strategy for you. If you need to turn inventory to generate income, then this is probably not going to be a good place for you to invest your money. So the next time you are sourcing and you find something with a high rank, or is a slow seller dig a little deeper. See if the return is going to be worth the wait. You may be surprised at what you will find.
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