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A reframing, putting Amazon back into perspective in comparison to career alternatives.
I write this as a reminder to myself first and foremost, but hopefully other sellers can benefit.
Lately I’ve been finding myself discouraged with sourcing, and finding products that you should only realistically grab 2-4 units of. I became spoiled from huge sales on high velocity items during the Q4 rush where prices were increased and retailers had their lowest buy costs.
But I’m a numbers guy. I like numbers. So let’s actually run them.
Let’s assume an average sales price of $50, and that we’re making 30% ROI on the item after prep costs. This is conservative. Once you get good, you can manufacture higher margins for yourself, but I digress.
So that’s $15 per unit. Let’s say you’re buying an average of 3 units per product, which is very low and very doable, that’s $45 profit per product. So let’s assume you’re able to find only 2 products like that in 1 whole hour of sourcing. That’s $90 profit per hour. If you were to treat it like a 40 hour work week, that would be a $180k/year in profit.
But let’s assume you only want to work, say 5 hours a day. At that rate of finding product, which is very very doable, that’s $115k in profit per year if you stagnated at that and didn’t improve on your sourcing efficiency.
You might say, okay that’s all good in theory, but I need a ton of money to do those numbers. Well let’s run the numbers. At 30% ROI, and a very conservative 60 day turnaround time (you can realistically be at 45 days), that’s 6 turns a year, or once every 2 months. So you’ll want to make $19k profit every turn at 30% ROI, which comes out to $64000 in total spend.
You might say “that’s too much money, I don’t have that kind of money.” Remember, I’m giving you the absolute bare minimum expectations here on ROI, turn speed, and at 0 reinvestment.
Are you able to bring your average ROI up to 40%? That’s very very doable when you’re talking lower velocity items. That just brought down your total spend needs to $47,500
Are you able to bring your average turn time from 60 days to 45 days by working with a prep that’s on the east coast, ensuring they’re not holding on to your product for longer than a day or two, and going wide on products rather than deep so they sell out faster? You just brought your spend needs down to $35,625, to make the same $115k in gross profit.
Are you able to live frugally for a year, renting a cheap studio, or moving in with your parents, avoiding vacations and unnecessary purchases, and bring your living expenses down to $3k/month? You just brought your initial required spend down to $18,279.
$18,279 to start, and 5 days a week, for 5 hours a day, paying yourself $1500 twice a month for bills, TO MAKE $115000 IN GROSS PROFIT. And all you need to do is spend an average of $138/hour to do it. That’s 4 units of a single product that you buy for $35, and make a 40% ROI on, or 2 products of the same criteria. You’re saying you can’t find $138 an hour of products at that criteria? You should just go back to your 9-5 at that point, because that is way more than doable after you’ve gotten halfway decent at sourcing.
So 5 hours of sourcing, 5 days a week, spending $700/day, at a 40% ROI criteria, to replace a six figure job. Sounds fantastic. But that’s not taking into account all of the added benefits of doing this INSTEAD of a $100k/year 9-5. Let’s go through a few of those benefits.
Did you run into a big sale and are able to spend a few grand in a single day? You’ve got the ability to cut your number of hours worked by becoming better and more efficient at sourcing. Can’t do that at your 9-5.
Hired a VA or two and trained them to source for 8 hours a day the way you want them to? You just bought back your time for $10-20k a year. Now you don’t source at all, and make the same amount spending an hour or two a day purchasing and managing.
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