Tuesday, September 27, 2016

Turnover Tuesdays - A Long Tail Sale and Calculating Storage Fees

For those who are not familiar, I started a series a while back called Turnover Tuesdays. Every Tuesday I like to highlight one item that I have resold. This will include profitable and non profitable sales. I hope that there is always something to learn.

The previous posts in the series can be found at the bottom of this post.

Long Tail Sales

Long tail sales are when you are selling an item that doesn't have much demand and you don't expect sales to happen quickly.  Your turnover is much slower but that doesn't mean your profit has to be any worse.

We would all like to sell fast selling items but those can attract a lot of competition so profits often eventually erode.  So instead of (or in addition to) selling 20 a month of one item you can sell 20 a month between 200 SKUs with the same sales numbers and possibly higher profit numbers

The downside, especially on Amazon where they are storing the item for you, is that you are going to pay storage fees.  That's definitely true but that isn't always a significant factor.

My Long Tail Sale

Back on January 31st, I bought the video game Onechanbara Z2 for PS4 from Best Buy for $27.38.

I will tell you that I honestly have no idea what this game is and I don't particularly care to know.  I don't have to know the use of the product as long as the customer has a use for it.

I priced the item at $69.99 and I basically forgot about it.   I just let it sit there.

As many of you know, when you buy something from Best Buy you either need to be the first or the last person to sell or you will get caught in the race to the bottom.

The rank is almost 8k in video games which isn't particularly good so it probably wasn't going to sell so fast.

It took until the beginning of August, 7 months later, before the first one sold.  I get $57 from Amazon after fees so that's a very solid profit on a cost of $27.38.

The next two sold at the beginning and the end of September so 8 and almost 9 months later at the same $69.99

You might be saying, "Yeah but you paid 9 months of storage fees.  If you sold after 1 month when it was $67 (I'm making that up - I don't recall the price after a month) you would have been better off".  You're right, I did pay 9 months of storage fees and I'd do it again because they were insignificant.

Let's calculate the storage fees and you'll see.

Calculating Storage Fees

Until recently, the way I calculated storage fees was by multiplying the unit volume by the storage fee.  For example, from January until the end of October storage fees are $0.54 for every cubic foot of volume for a standard item (non oversize).

Starting November 1st, they will jump to $2.25 for the same item, an increase of 4.16666x.

If you look at your FBA inventory, the last column tells you the unit's volume in cubic fee.

So in this instance the volume was .029 cubic feet.  Multiplied by $0.54 you get a whopping $0.01566 a month.  Not even $0.02.  I would have paid $0.18 total per unit. That's completely insignificant.

But wait, you might ask about Long Term Storage Fees since they were at Amazon for more than 6 months.  Those are more significant right?  Yes, of course but I gladly paid those as well.  Instead of $0.54 per cubic foot it's $11.25 per cubic foot for anything there for 6 months or longer while the LTSF is being assessed.

This means that I paid $0.32625 per unit for LTSFs.

I hate LTSFs as much as the next person but if I can make a few dollars more in profit and only pay a few dimes more in fees, I'll take that every time.  There are other items I paid monthly storage LTSFs which I'm much less excited about.  Unfortunately a lot of them.  Selling is a constant learning process for me and I'm still trying to figure out what works and what doesn't work.

A Better Way to Calculate Monthly Storage Fees

The problem with the last method I mentioned is that it requires math and effort.  Who wants that!?  A friend of mine (HT: NB) pointed out to me that if you run the Amazon fee calculator, the monthly storage fee comes up.

As you can see, Amazon tells you that the monthly storage fee is $0.02 for this item. When we calculated manually it came out to $0.1566 so most likely they are just rounding up so that it doesn't show you paying half cents but this will give you a good indication of what your monthly storage is for that item.

Storage fees are rough.  I hate them but that doesn't always mean that you have to sell everything quickly.  If it is a small item and the profit margin is good enough, it can be worth it to wait months and sometimes even a year or longer if you "know" that it will eventually sell.

It's nice to have the cash in the bank, it's even nicer to have more cash in the bank later.

I will agree that this means a slower return on your capital.  I would tolerate lower profit numbers in order to increase sales.  I am not currently using all of my available capital so that doesn't take part of the equation for me but it would change if you are using all of your capital.  It would be better to have 2 sales at slightly lower profit than sale at higher profit (obviously depending on the actual numbers).   If you aren't using all of your capital then they aren't mutually exclusive.

Week 64 - The Buy Box
Week 65 - Amazon Restrictions and the Future of Selling on Amazon
Week 66 - Fun with Inventory Reimbursements
Week 67 - Q4 Storage Fees
Week 68 - A Long Tail Sale and Calculating Monthly Storage Fees