There are a lot of opportunities for Amazon sellers when it comes to product sourcing. One of the most successful is the liquidation model. Why? Simply put, you can find great products that have been liquidated for numerous reasons including customer returns, shelf pulls and warehouse pulls, and get them for a fraction of the price. This is basically how the supply chain works, passing the products back up the chain to distribution centers and warehouses instead of down the chain to the stores.
One of the main reasons the liquidation business is so lucrative is that it often comes with a steep MSRP discount. You can often receive products with an MSRP discount of up to -90%. However, there are some things to consider before you decide to buy liquidation inventory.
Let’s take a look at the four main things you need to watch out for when you source liquidation products.
1. Choose Manifested Products
It is critical in the liquidation business to only purchase products with a manifest. Without the manifest, you are simply gambling, because you do not know exactly what you are getting and you are basically shopping blindly. The manifest is a detailed document for every product that you purchase with information like product pricing, description, ASIN number, and condition.
Keep an eye on the product variance percentage. Each liquidation company works with product variance percentage — the percentage that company allows some products to miss from their manifest.
For example, if you buy a pallet with toys and the pallet contain 500 units, from time to time one unit may be missing. This will be in the allowed percentage variance of the company you work with. However, if the missing units surpass the allowed percentage variance, you can ask for a refund and the company will pay you the difference. The allowed percentage variance usually ranges from 1% to 3%.
2. Check Product Condition
It is extremely important to know the condition of the products that you are getting. The condition should be stated in the manifest. Why is this important? As mentioned, the liquidators deal with customer returns and shelf pulls. These products can be brand new, but the box might be damaged slightly or the product might have scratches from transportation. Therefore, if you are selling on Amazon, you won’t be able to list that product as “new.”
Be sure to physically check the condition of your products before you list them to ensure no damaged ASINs are getting through. Failure to do so can result in a low-performing account, customer returns, and complaints.
Many liquidation companies do not list the condition of products that they are selling, so be aware. When they do, you can find different classifications such as:
- Box damaged
3. Plan Ahead for Expenses
It is also very important that you take into account any additional fees and shipping costs. Many people end up miscalculating their profit by failing to consider all the expenses involved. When you look at the starting price of the industry’s Manufacturer’s Suggested Retail Price (MSRP), which is often up to -90% off, this is generally the industry standard, but not the true value of the product. The true value is the lowest price at which a consumer can find the product.
Considering all of the aforementioned expenses, you should aim for a profit between 30% to 60%. While many people are looking for profits of 100%, this is unrealistic when you take into account all of your expenses.
4. Specialize in a Specific Category
If you are just starting to test the liquidation business, it’s smart to focus on one product category. Specializing increases your likelihood of a larger ROI, especially at the beginning.
Most of the liquidation companies work with different retailers. For example, they may have a contract with an electronic or toy retailer, which can give you the opportunity to find a lot of great products in a specific category.
Really get to know the products you are selling and their specifications. This includes timeframes of seasonal demand, customer reviews, sales rank, your competitors and their pricing.
Start with a small investment to find out how the company operates. This is important before you establish a healthy business relationship with the company you choose to work with, because you will find answers to important questions such as:
- How good is the company’s communication and customer service?
- Does their merchandise come manifested?
- What is the condition of their products?
- How do they grade their products?
Sourcing product from liquidation companies is still one of the best ways to find merchandise for your business and profit from it. However, this is not a quick ticket to getting rich and there is a lot of work involved.
If you carefully evaluate the products you are purchasing, there is an excellent chance that you will reach your return on investment goals, make a profit and expand your sourcing to grow your business.