How to Select Items for Selling on Amazon
Picking the items that will provide the highest return on efforts, for which listings need creating, sourcing and inventory stocking are needed, requires advanced use of analytics.
For selling items on Amazon, such analytical work takes place in 2 stages
- Analyze own historical sales performance and identify the high-value items
- Cross check items against Amazon Analytics for revenue potential and assign Amazon Rank Score
The winning items will sit in the intersection of your high-value items that have high revenue potential on Amazon.
This is easier said than done as things start to get complicated when you try to define what makes an item “High Value”.
Identifying your High-Value SKUs (HVS)
There are three (3) factors that determine the value of a sale
- Date of Sale (Recency Score)
- Quantity Sold (Quantity Score)
- Sale Value (Value Score) or Profit Generated (Profit Score)
If a company is in growth mode and seeks to grow top line, Value Score would be more important than the Profit Score. However, if the objective is to grow bottom line, then the Profit Score would take priority over Value Score. Therefore, it would be advisable to pick one of the two scores as your third score of choice.
The most important factor out of all is the Date of Sale, where the most recent sales are more likely to reoccur. The rest would depend on the company’s strategy. So how does one go about picking the high-value items since some most recent sales may not have the highest sale value and equally those that have achieved high sale value may not have been sold recently?
This is done by assigning every item a score for each one of the factors and then picking the ones that have achieved the highest score for each factor.
We provide a template developed in-house called “SKU Profiler”, which is an Excel document that provides the framework for scoring. Scores are assigned on a scale of 1 to 10 (10 being the strongest).
The scoring takes place in 2 stages:
- Set up your tiers to ensure you spread your items evenly across scores.
- Fine tune the tiers based on expectations of item performance
In addition, you gather the data for
- Last 12 months
- Last 30 days, and
- Last 7 days
This means that every item would get six (6) scores. You would then add the Recency Score to each SKU based on the calculation of how many days since the last sale date. This brings your total number of scores to seven (7).
For example, if an item sells one (1) per month, it would mean it would sell twelve (12) a year. If that is what would put an item on the radar screen, you would set up the lowest tier of your Quantity Score from 0 to 12. You would then work your way up.
Apply this logic for setting up all seven (7) score tiers.
Once the tiers are finalized, the Excel document should automatically assign the associated scores to your items. Now, the fun part comes in. Filter all the items that have achieved score 8 and up across all seven (7) scores. Those will be your highest value items. If you are not getting any, then you can start to compromise in the following order:
- Consider yearly scores
- Start with the items with the highest Recency Score since it is the most important and prioritize the rest according to company strategy
- Add on monthly scores observing the same prioritization
- Add on weekly scores observing the same prioritization
Once you have the scoring complete, tag the items that are left standing.
Assigning Amazon Rank Score
Now that you have identified the items that have the highest value for you, the next step is to see how much revenue they are likely to generate on Amazon.
This is done by using the Best Seller Rank (BSR). Even though this is a volatile number that fluctuates frequently, we are not looking to work with an exact number but instead an approximate one. In addition, Amazon assigns several BSRs to some items as they display the rank within its top-level category as well as some subcategories. The BSR we work with is the number displayed for the Top-Level Category.
In order to find the BSR, you need to first find the item on Amazon. While you are researching the data, make sure to record the Search Term you have used to bring up the listing and the ASIN of the search result you have selected as the best match (See Article -How to Use the Amazon Product Details Page?). They will be useful down the road.
Apply the same methodology to set up your tiers in the same two (2) stages and assign your Amazon Rank Scores.
Cross-linking High-Value Items and Amazon Rank Scores
Once you have the Amazon Rank Scores assigned to your items, you will apply further filtering to select your highest value items that have also high Amazon Rank Scores.
Only, in this case, the lower the score the higher the value since being #1 on the Top 10 list of a category means you are the best. It may be a little confusing but if you think about it, it is not. The high Rank Score means low score number. So, therefore, follow the logic to pick the items with the lowest Rank Scores during your filtering.
It is possible that once all the scoring is done, none of your HVS may have a high enough Rank Score or there may limited number available. In which case, follow the steps below:
- Remove all your previous filters
- Select the items that have the highest Rank Scores. This will eliminate some of your HVS.
- Select the highest scoring applying your company priority mentioned in the Section about selecting your HVS.
This will ultimately give you the items that are most likely to generate the highest revenue with the highest # of pieces sold profitably.
Generally, it would be a good idea to further divide these items into three (3) buckets with the following characteristics in order to prioritize your work:
- Bucket 1 – Items where combined filtering utilizes the low scores
- Bucket 2 – Items where combined filtering utilizes the mediocre scores
- Bucket 3 – Items where combined filtering utilizes the high scores
- No Bucket – Items where filtering renders items with very low scores
Bucket 3 items are your Winning Items. So, work on getting those items listed, followed by working your way thru Bucket 2 and then ultimately Bucket 1.
If you would like to receive a copy of our SKU Profiler Tool, please reach out to us via email and we will connect.
About the Author:
Nick Uresin is the Founder and CEO of ArgoMetrix, a New York based software and consulting company established in 2013. Nick is an Entrepreneur, Electronics, Communications and Computer Science Engineer, who has a passion for problem solving with technology. Nick built an online retail company with annual revenues of over $10 million. He developed his vision to organize the knowledge and technology he developed to become a large Amazon Seller and provide it as a service to manufacturers and sellers of consumer products. Let's get social! Follow us and get ArgoMetrix's latest updates on Twitter, Facebook or LinkedIn.