How Does Inventory Purchasing Work?

Inventory purchasing plays a crucial role in the success of your automated retail business, and it's our responsibility to make the right product choices and purchasing decisions for you. In this article, we'll break down how inventory purchasing works for your automated retail business in a straightforward way.

Purpose of Buying Inventory for your Amazon Store

As with any inventory-based business, in which products are sold in order to make a profit, there's a constant need for the Amazon store owner to purchase inventory (also known as working capital) to enable sales of the inventory on Amazon to generate store sales and profits.

A common every day example of a store that purchases and sells inventory is a sandwich shop. To keep a sandwich shop in business, an owner needs to keep the fridge stocked with meats, cheeses, and sandwich toppings, the counter cabinets stocked with fresh bread, snacks, plates, and napkins, and the cash register full of enough cash and coins to make change for customer purchases. If the sandwich store owner did not keep buying inventory (or working capital), there wouldn't be a way to continue generating sales and profits.

The same is true for your Amazon store - in order to generate sales and profits, you will need to have a constant cadence of purchases of inventory, in order to generate sales and profits. In effect, you will have a constant balance on your credit card, which you will develop a rhythm of inventory purchases and credit card monthly payments fueled by your Amazon deposits. As your store grows, you will also grow the monthly purchase amount (we call this float), and the cycle continues at the new higher float.

This consistent carry of a credit card balance should be viewed as your store's working capital, which generates cash deposits into your bank account from sales of that inventory by Amazon on a rolling basis. For example, in Month 1, let's say $10,000 of inventory purchases is charged to your credit card. Over the next 30 days, if $8,000 of that inventory is sold, Amazon will deposit funds from those sales to your bank account. Once the remaining $2,000 of inventory is sold, Amazon will again deposit funds from those sales to you. This process of purchases and deposits will repeat on a rolling basis, fueled by your credit card.

Managing Product Selection

We start by curating products that we believe will work best for your automated retail store. To do this well, we follow these steps:

Research: We study market trends and product performance data to understand what products are most likely to sell and the quantity of units needed to order.
Quality Controls: We ensure that the products we choose are high-quality to keep your customers happy and prevent returns. Most of this is taken care of through brand selection and warehouse controls.
Pricing Strategy: We set competitive and profitable prices for your products by considering costs and what similar products are priced at. In our model the profit on products is made through the initial buy of inventory: the better the bulk purchase price, the more potential profit on the storefront.
Seasonal Items: We stay aware of seasonal trends and adjust product selection accordingly to boost sales throughout the year.
Supplier Relationships: We build great relationships with reliable suppliers who can provide you with the products you need, when you need them.

Making Purchasing Decisions

Once we've selected your products, it's our responsibility to make informed buying decisions based on demand and stock levels:

Track Stock: We keep an eye on how much of each product you have in your store, using both manual methods and specialized software.
Understand Demand: We analyze your sales history, customer orders, and market trends to figure out which products are popular and which ones might need some changes.
Restocking: When a product's stock gets low (reaches the reorder point), we decide whether to restock the same product or explore new options:

a. Reorder Existing Products: If a product consistently sells well, we order more of the same from our suppliers.

b. Implement New Products: For products with inconsistent sales, we may look to diversify products on your storefront.
Supplier Communication: We keep consistent communication with our brands and suppliers to place orders for restocking or buying new products. We also negotiate pricing and shipping terms to make the most of your inventory.

Conclusion

Inventory purchasing is about managing product selection and making smart buying choices based on demand and stock levels. In today's competitive market, being flexible and using data to make decisions is key to success. It's our responsibility to handle these tasks for your automated retail business.

By carefully choosing your products, staying up-to-date on what customers want, and working closely with your suppliers, we ensure that your automated retail business keeps thriving.