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An Amazon Sellers Guide to Understanding Why Prices Tank and Sales Velocities Halt and How to Avoid It

Why Prices Tank on Amazon

Tell me if you've been here (if you've sold anything on Amazon, I'm 99% sure you have)...

You found a product to sell on Amazon and were sure that it was going to be a winner.

It checked all the surface level criteria....

  • Low sales rank
  • Good margins 
  • Acceptable net profit after fees
  • Only a few sellers 

But something happened between the time you bought it and it hit the fulfillment center...

The sales price you expected plunged and the product wasn't selling as quickly as you predicted.

Maybe just one of these happened but in an extreme way that left you stuck with inventory that might take exponentially longer to sell than you expected OR forces you to slash your price to destroy your margins and possibly require you to take a loss OR continue paying storage fees indefinitely.

This isn't a good feeling. 

If you’re new to Amazon, don’t beat yourself down about this. 

It happens. It’s part of the learning process.

Even if you never bought paid courses, coaches, masterminds etc. everyone pays the “amazon selling tuition,” in the shape of bad buys from time to time.

These mistakes are in my opinion, better teachers than any paid course or coach you'll find. That is of course IF you choose to look your mistakes square in the eye, analyze them and learn from them. 

So first, be sure that you commit to investigating WHY mistakes happened so you can build a mental inventory of scenarios and experiences you can avoid in the future.

The same goes for your successful buys. Remember why they were successful and add that to your mental inventory of insightful experiences. 

The best Arbitrage sellers have thousands of buying experiences they’ve learned from. Many are positive and many are not positive, but if viewed properly, they are all helpful in the long run IF you choose to learn from them. 

So, here are some of the most common reasons product prices tank and sales dwindle AS WELL as a corresponding takeaway to improve your Amazon sourcing decisions going forward. 

1. You based your margins on a price that wasn’t realistic

Remember, just because something is listed at a certain price doesn't mean that it will or has ever sold at that price. 

Objection: "But it has a low sales rank!"

A low sales rank doesn't confirm that the current price is valid. The low sales rank could be reflective of lower priced sales of the same ASIN (an "ASIN" by the way is the name for of a unique identifier given to each product on the Amazon marketplace by Amazon).

Objection: "But it has sold at that higher price!"

That is good but remember, that doesn't mean the sales rank estimate matches that desired price. 

"...just because something is listed at a certain price doesn't mean that it will or has ever sold at that price."

For example, the product that you're looking at that appears to be selling once a week at $39.99 and it even HAS sold at that price once or twice over the past year, but it might have been selling more often at $19.99 in the past which will skew the sales rank.

This is part of why sales rank should always be taken with a grain of salt. 

Sales Rank vs. Price

The fundamental flaw here is that sales rank on Amazon is a snapshot in time, reflective of the most recent purchases NOT necessarily the most recent price. 

If an item is estimated to sell once a week at $19.99, the basic principles of price and demand will cause the units actually sold in the future to drop if the price is raised above $19.99 (all other things being equal). 

Example:

Here is a hypothetical example of the impact of increased price on a product ranked 100,000 in toys with an average sales price of $19.99. This is to prove the concept and doesn't reflect an actual product pricing/demand trend. Each product will react differently, but the trend will (almost) always be fewer units sold as the price increases. 

Toy with sales rank 100,000 with average sales price of $19.99 priced @ $19.99 --> 37 unit per month

Toy with sales rank 100,000 with average sales price of $19.99 priced @ $29.99 --> 10 units per month

Toy with sales rank 100,000 with average sales price of $19.99 priced @ $39.99 --> 5 units per month

A product that has historically sold at $19.99 and is currently priced at $39.99 will likely NOT sell at the rate the sales rank would suggest. 

This is why I said to take sales rank with a grain of salt. This is especially true for slow moving products. If something is "estimated' to sell once a month, you should be extremely skeptical and ensure that you are able to make your desired margins at a lower than average price to hedge your risks. 

This seems simple, but it is one of the most common mistakes made by new sellers. 

"But I'm using the 90 day average sales rank!"

While that is often times better, it still ignores the current price.

Solution: You HAVE TO CHECK the price in a tool like Keepa or CamelCamelCamel (CCC) to validate. Mastering Keepa and CCC is something that takes time and merits much deeper studying than I will provide in this post. For that reason, I HIGHLY recommend looking into an affordable training program/book from my friend Stephen Smotherman called "How to Keepa Camel." When it comes to "bang for your buck," in Amazon education, I don't believe there is a better value than this. 

Click the book below to grab a copy now!

how_to_keepa_camel

2. You trusted sales rank too much and it wasn’t an accurate predictor of future sales

Similar to point #1 above, sometimes sales rank can be greatly exaggerated based on a random outlier of sales. 

If someone JUST purchased a product (especially one that is historically slow moving) the sales rank might be overstated. 

Objection"But the price is consistent/lower than average!"

That doesn't mean that the random, recent spike didn't skew the rank.

Solution: You have to check Keepa or CCC to ensure that sales ranks over time have been stable and there are no recent outliers. 

"...If someone JUST purchased a product, the sales rank might be overstated."

3. You bought something as it was going out of season

Again, this seems simple, but many sellers suffer from "sales rank blindness" and stop thinking critically. 

Some products have seasonality that is common sense, like these Valentine's Say "Be Mine" Tic Tacs....

Amazon Seasonal Variations

There is a huge swing in velocity AND price leading up to Valentine's Day.

This throws a two wrenches into the sales rank approach to sourcing. 

Price and velocity are grossly overstated in the months following Valentines day. 

Yes, there are some strange outliers that actually continue their sales trends because people love them for some reason and want to stock up while they are close to being "in season," but those are the exception, not the rule. 

4. You bought something on a highly visible regional sale (not clearance) 

When doing online arbitrage or retail arbitrage, buying at regular price or clearance is typically better than buying sale priced items if the sale is widespread across multiple regions. 

For example, if Target runs a promo on a brand of shampoo and it is ran regionally, expect that price to plunge as more sellers come onto the listing. 

More sellers means downward pressure on the price. 

"...buying at regular price or clearance is typically better than buying sale priced items if the sale is widespread across multiple regions."

Downward Pressure on Price

By the time that this levels out and new sellers see there is no longer any reason to join the listing, you will likely be selling on a listing that is flooded with sellers who are now desperate to offload their products to regain their capital. 

This means a long line of sellers you'll have to wait behind. 

Again, this seems like common sense, but remember, if something is selling "x" units per day, those aren't all going to you. Sales aren't by any means spread out evenly. They are going to the owner of the buy box, who is typically the seller with the lowest price. 

Here's an example...

You purchased an item on a regional sale (let's say at Target) and the number of sellers surges to 100 in just 2 weeks.

Now let's say that the ASIN sells 1 unit per day.

It is likely that most of the sellers have multiple units (if you're curious exactly how many your competitors have in stock, you can use a chrome extension/app like How Many to get an actual count of how many items your competitors have in stock).   

If the sale is something that rewards buying in bulk, "buy 2 get 1 free" of the same item, this issue can be greatly exacerbated. 

5. You got unlucky and landed on a page with a savage competitor

I recently read a book called Thinking in Bets: Making Smarter Decisions When You Don't Have All the Facts by Annie Duke. If you get a chance to read it, read it, if not, let me summarize a key takeaway that relates to selling on Amazon (and really every aspect of life). 

Just because a decision resulted in a negative outcome doesn't mean that you made the wrong decision. 

This is a concept called "resulting" and it can lead us to making false correlations and might cause us to change our future decisions when we really shouldn't change a thing at all. 

Sometimes, you just drew the short straw by jumping on a listing.

Regardless of the fact we have a massive amount of available data we can use to make our buying decisions, we will never have perfect information. 

You can't control if another seller comes onto a listing and can take lower margins than you and has a seemingly endless amount of inventory. They might have their repricer set to undercut you until the cows come home. 

You can do just a couple things to avoid savage competitors. 

  1. Pay attention and avoid them in the future (not always feasible)
  2. Make adjustments (maybe liquidating isn't a bad idea if it means getting working capital back soon and avoiding storage fees). 
  3. Check the inventory of sellers with the How Many app before listing a product (not always a perfect method since some sellers might not store all their inventory at a fulfillment center)

"...Just because a decision resulted in a negative outcome doesn't mean that you made the wrong decision."

Don't beat yourself up if you fall into one of these situations. 

6. You bought something that was being replaced by a new generation 

Here is what you need to know about buying products that are being upgraded.

  • People won't stop buying them 
  • People will expect them at a lower price. 

Model, year etc. doesn't matter at all as long as your buying decisions are based on what the present and future will reflect. 

So what if the XBOX 360 isn't still selling for $399 like it did when it came out? If you can get 50% margins on one selling at a lower price, do it all day. 

Just be careful that you don't load up on a product that has a replacement coming in the near future IF you're expecting the price to remain where it is. A price drop is typical when new generations or alternatives come to market. 

Resources Mentioned

About the author

Nate McCallister

Nate is the founder and main contributor of EntreResource.com. He is a lifestyle entrepreneur who spends his time building businesses and raising his two kids Sawyer and Brooks with his beautiful wife Emily. His main interests include copywriting, economics and piano.

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