Cash flow is crucial to the health of any business. The more cash the company has, the more flexibility it has. In bookselling, cash flow is preserved by keeping the cost of goods low as possible. If a book is expensive, there are many factors to consider before purchasing. In general, for beginners, keeping costs under three dollars per book is a safe way to start. Any more can add up rapidly and put the business at risk.
We aim to have an investment/profit ratio of $1 to $10, or as close as possible. The following example will illustrate how to use the ratio criteria of $1 to $10. The numbers show how spending less and diversifying risk is a good strategy in the bookselling business. Consider the following scenario:
If you purchase a book for $1 and sell it for $10, you've met the 1/10 ratio. That's a profit of $9, which is a 900% return on your investment. Now, let's say you buy 10 books at $1 each, which costs you $10 in total. You then sell each book for $10, bringing in total revenue of $100. With your initial investment of $10, you make a profit of $90, a return of 900%.
Now, let's consider another scenario. You purchase a book for $5 and sell it for $20, which is still a 1/4 ratio. That's a profit of $15, which is a 300% return on your investment. To make the same profit as the previous scenario, you would need to sell at least six books at the same ratio, which is a greater amount of risk and work.
By keeping your investment low, you can diversify your risk and reduce the impact of any one book losing value. With an investment/profit ratio of $1 to $10, you can optimize your potential profits while minimizing your costs, which is key to the success of any bookselling business.
The process of building up sales on Amazon starts with just one sale, and then it grows from there. The more inventory you send, the greater the chances of making sales. In Scenario B, having an extra $20 in cash by the third week can make a significant difference. With that extra money, you can purchase 20 more books that meet the same criteria and keep the cycle going. Generally, we only buy expensive books if we anticipate that they will sell quickly for the targeted price. That is, if they sell regularly (around once a day) and the price remains relatively stable.
Many people may avoid selling books with high ranks, but this can be a mistake. While it is important to be cautious with high-rank books, you may be missing out on good profit potential if you limit yourself to only books with ranks below a certain level. A book's rank is just a snapshot in time, representing approximately when the book was last sold. A book ranked 2 million, for example, likely sold around 20 days ago. However, rank alone is not a reliable metric. It is important to use Keepa data to verify the rank and determine how frequently the book sells. If a book has a good chance of selling again, it can be a good investment even with a high rank. Keepa can also help you estimate the general market price, which is crucial for determining whether a book is worth buying to sell. By understanding the sales history and market trends, you can make informed decisions and potentially profit from books with high ranks.
When considering whether to buy a book with a rank of 3 million, I don't immediately dismiss it. Instead, I first look at the market price and if it shows promise, I conduct a more detailed analysis. Using Keepa, I check if the book is likely to sell within the next 3-6 months, and estimate its previous sale price. For books with high ranks, the lowest used offer price can give a good indication of the previous sale price, which is where the downward spike on the graph intersects with the low used offer price. By using this data, I can make an informed decision on whether to purchase the book or not.
If there is a good margin and the book is likely to sell again, it may be worth it. The next step is to price the book competitively based on what it last sold for. With an aggressive automated repricing strategy, the book will remain competitive and have a better chance of selling.
When you purchase a book for your business, you must keep in mind that the clock is ticking, and you have committed to processing it. Processing a book involves a lot of time and effort, including cleaning, labeling, listing, packing, shipping, and pricing. The time you spend processing books is valuable because it has a monetary value, and there's an opportunity cost associated with it. This means that every minute you spend processing books is a minute that you are not spending on other activities that could generate income or benefit your business in other ways. So, it's essential to keep the time and effort required to process a book in mind when deciding whether to purchase it and to ensure that you allocate your time and resources effectively to maximize your profits.
Tracking Sourcing Data (Notes or Spreadsheet)
Keeping track of sourcing data can provide valuable insights about the places and sales you visit. Here are some key statistics to document every time you source:
Tracking this information can help you identify the best local sources, when they are restocked, and when to expect competition. It can also help you analyze your profitability and make informed decisions about where to focus your sourcing efforts.Having quick access to this information is worth the effort. After a few weeks, you'll have a clear picture of how much you are spending, the best places to visit, and when to go.
Your strategy should be to sell a book in less than a year. After 12 months, you will need to pay Long Term Storage Fees (LTSF). At this point, you should re-examine whether or not these books belong in your inventory. If not, you have two options. One, have Amazon dispose of the book. Two, have the book returned. If you have to dispose of books, this is considered a business expense that may be tax-deductible. If the book has been returned, you might be able to recoup some of the costs by selling a few of these on eBay.
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This information was last updated, March 2023.
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