How to Liquidate Inventory on Amazon FBA
Many FBA sellers struggle when they have to liquidate inventory. It’s just a normal part stock management.
Most brands will have to liquidate inventory at some point or otherWhen they run into this issue, it can bring them to a standstill because it’s not always clear how it should be handled.
For some, when they face the problem of overstock or excess inventory, it sends chills down their spines. Visions of being charged hefty long-term storage fees and having capital tied up in slow-moving product dance through their heads.
Amazon inventory liquidation doesn’t have to be a negative experience, however. Amazon FBA can be an awesome business for anyone. No seller should let Amazon fees, shipping costs, plus the race to the bottom dampen the excitement of selling online.
If you ever come to that point when you must liquidate inventory to stop the bleed, know that it doesn’t have to be a loss. You can remain profitable if you know what your options are and how to choose the right one for your unique situation.
The Typical Overstock / Excess Scenario
FBA sellers enjoy the privileges that Prime subscriptions have to offer. But FBA means sending inventory to Amazon warehouses, and this means different kinds of fees.
If your products sell well and you keep reasonable stock levels, you won’t have to pay too much in terms of fees. Two things can happen however, that can quickly turn into a big problem:
Dead Inventory – the product simply does not sell, so you are not only holding a dud, but keep bleeding cash the longer you hold on to it. Your best bet is to liquidate as soon as possible.
Long-Tail Inventory – sales suddenly slow down for a certain product, so you end up paying high monthly storage fees and possibly additional long-term storage fees if the items remain in Amazon’s warehouses beyond the allowed timeframe. Your best bet is to recall your inventory and figure out when and how to restock based on real performance.
To avoid this situation, you need to do two things:
1. Know how your products are moving by keeping an eye on inventory levels and how they fluctuate. This is so you can:
spot any impending overstock or excess issues and figure out how to keep your inventory flow within acceptable limits moving forward
spot dead inventory and get rid of it
spot long-tail inventory and implement a solution to avoid hefty storage fees
2. Liquidate Amazon FBA inventory that you foresee won’t move in time. Liquidate before those products becomes a financial burden instead of the bread and butter that you intended them to be.
Why You Need to Embrace Amazon Inventory Liquidation
You may fear the idea of liquidating excess inventory. No seller wants to deal with long-term storage fees, nor have profits tied up to slow-moving items. But how can you handle the situation? The new FBA Liquidations program could be the solution.
Amazon FBA sellers must liquidate stock at some point. However, it doesn’t have to be a setback.
Why Liquidate Inventory
Inventory management is not an exact science. One of the greatest challenges for FBA sellers is to get their stock just right for sale.
The simple reason sellers must liquidate stock is they overreached. Perhaps they predicted greater demand, and ended up with excess inventory.
This can create two problems:
Dead Inventory– Holding items that just don’t sell
Long-Tail Inventory – Product sales slowdown for an extended period
Amazon sets fixed timeframes to store products in the warehouse. Therefore, excess inventory will generate higher monthly storage fees, and long-term storage fees.
Standard-sized products rack up $0.75 per cubic foot from January to September. The rate increases to $2.40 per cubic foot from October to December.
Items with more than a year in the warehouse attract $6.90 per cubic foot. And that’s besides standard storage fees.
Holding to non-selling stock is an expensive strategy. That’s why you should recall your inventory, or liquidate it.
Amazon FBA Liquidation
The FBA Liquidation Program allows sellers to make value out of reselling or liquidating stock. Therefore, you can avoid inventory disposal, and return and storage fees.
Here’s Amazon’s official statement on Seller Central:
Starting June 1, 2021, Amazon will charge FBA Liquidations fees, which will be incurred when shipments leave fulfillment centers. If you submit a liquidation order before June 1, these liquidation fees will apply if your inventory is shipped to a liquidator on or after that date.
When you choose to liquidate, Amazon negotiates the stock sale with a wholesale liquidator.
The average selling price is determined by reviewing the following factors:
Overall sales history
Average FBA selling price
ASIN-specific sales history
Third-party liquidators will then purchase the stock for a gross recovery value of 5% to 10%. From this sale, Amazon deducts two liquidation fees: processing and referral fees.
The processing fee is based on item size and weight:
Item Size
Weight
Processing Fee
Standard
0 – 0.5 lb.
$0.25
0.5 – 1 lb.
$0.30
1 – 2 lb.
$0.35
Over 2 lb.
$0.40 (+ 0.20 per lb. above the first 2 lb.)
Oversized & special handling
0 – 1 lb.
$0.60
1 – 2 lb.
$0.70
2 – 4 lb.
$0.90
4 – 10 lb.
$1.45
Over 10 lb.
$1.90 (+ 0.20 per lb. above the first 2 lb.)
FBA Liquidation referral fee varies by item category. Here are some examples:
Item Category
Referral Fee
Books and Music
15%
Photo & Camera
8%
Personal Computers
6%
Home & Garden, Kitchen and Pet Supplies
15%
Consumer Electronics and Video Game Consoles
8%
Amazon Device Accessories
45%
Personal Computers
6%
Clothing & Accessories
17%
Gift Cards
20%
You can review the full FBA Liquidation referral fees here. Also note that the following items are not eligible for liquidation:
Expired or defective products
Recalled inventory
Dangerous goods (hazmat)
Warehouse damaged Items
Once the process is complete, Amazon will pay you the net recovery value. The profit should appear in your account within 60 to 90 days after you submit for liquidation order.
FBA Grade and Resell as Used
This Amazon program is designed to sell used goods. When customer returns arrive at the warehouse, sellers can choose to resell items as “not new.”
Amazon staff will then inspect the product and grade its condition. Items can be resold as “Like New”, “Very Good”, “Good” or “Acceptable.”
Once rate, sellers can set the product’s price. Then, Amazon returns the item to the warehouse and re-lists it in the marketplace.
Note that products rated below “Acceptable” can’t be resold. Also, remember used items can’t win the buy box, so users have to seek them out.
How to Avoid Liquidating Stock
Before liquidating, ask yourself why the stock is not selling. The FBA Liquidation Program should be your last resort.
There are many reasons why items are slow sellers. Chances are you may find ways to boost sales, before having to liquidate.
Here are some key actions to take before using Amazon FBA Liquidation.
Product Analysis
You need to know if an item has the potential for sales. Use a sales estimator tool to determine whether you should invest time in reviving dead inventory.
If it’s worth it, review the categories. Use Amazon’s product classifier to find the correct type of listing for a product. A change in category could help you find the right audience for dead items.
Also keep in mind the seasonality. Selling out of season can generate long-tail inventory issues. If that’s the case, recall your stock to avoid excess storage fees.
Source: Empire Flippers
SEO & Listing Optimization
High Amazon ranking translates to better sales. Poor listing optimization is a common cause for low sales.
Improve on mobile design and keyword research to increase visibility. Place the best keywords in the title, bullet points, and backend.
Also focus on creating great sales copy and visual content. You can enhance your descriptions with A+ Content and storefronts to get the buyer’s attention.
Reprice Products
Competitive pricing goes a long way. Use a reprice tool to find what’s the best number to sell a specific item.
These tools will also help you stay within your profit margin. And of course, you can lower prices temporarily until you get rid of excess stock.
Promotions
Invest in Amazon seller promotions, such as:
Product bundles. Match a low-selling item with high-selling products. Users will get two items for the price of one, and a chance to see the greatness of both items.
Giveaways. Free products create awareness and engagement. Giveaways are a great strategy to attract more consumers into your listings.
Use influencer marketing. Consumers listen to recommendations. That’s what influencer marketing is about. Try working with popular social media users to showcase your products.
Scarcity Marketing. “Kill’ a product by selling it. Announce that you won’t be dealing with a specific item. You’ll create “limited” offers which may boost sales.
Advertising
Invest in Pay-Per-Click ads. This will boost traffic to slow-selling products and create awareness.
You should also use sponsored campaigns to boost visibility. These Cost-Per-Click will highlight offers in Amazon search results and on product pages.
Alternative Channels
If Amazon users did not take the product, then try selling it elsewhere. Take the excess inventory to Shopify, Walmart or the Instagram Store. Chances are you’ll find better luck there.
Another good strategy is to swap products. You’re not the only brand with inventory issues. Seek sellers who are suited to sell your excess items, and swap it with products you have better chances to liquidate.
The Benefits of Liquidating Inventory at the Right Time
Aside from avoiding a financial problem (i.e. unnecessary storage fees), liquidating inventory has a few positive results:
When you liquidate inventory that isn’t moving, you can free up capital to purchase better selling products instead of it being tied up in loser items.
Following #1, you can turn the situation around and make lemonade. Re-sell these loser items elsewhere to make back your cost of goods, plus some profit if you do it right.
Before You Decide to Liquidate FBA Inventory
Just because you see that you have too many of a certain product in FBA warehouses, it doesn’t necessarily mean that you need to liquidate stock. There are many other reasons why a product is not selling as well as you thought it should.
Before deciding to liquidate inventory, go through the following activities. They might reveal a different issue and therefore provide you with a more profitable option than liquidation. Plus, they will help you get a better deal on your product should you end up having to liquidate.
Note that taking these steps is no guarantee that you will see good enough improvements in sales. They will, however, allow you to hit two birds with one stone.
These actions will give you the information that you need to liquidate profitably.
1. Check Your Account Performance
No seller will be able to see good sales statistics if their overall account performance is poor. You need to first improve your account health before you can begin to analyze product performance. Look at the key metrics and make the necessary improvements to push your store up. Then you can get an accurate picture of product performance unaffected by poor customer service, shipping, etc.
If you’re still not selling, that’s one vote in favor of liquidating the inventory.
2. Analyze Your Product
Use a sales estimator tool to analyze the potential of your product. This will tell you whether the product has a chance and if you should spend time and effort to tweak your listing.
Ideally, you should do this before you decide to sell any product, but at this point, at least you will know if you should cut your loses immediately or give it the old college try.
3. Check Your Product Category
Your item may not be selling or ranking because it isn’t in the right category. Use Amazon’s product classifier to find the correct ItemType for your product and update it. Then monitor for improvements.
If nothing changes or things get worse, then that’s another vote for the liquidate camp.
4. Check on Seasonality
Might your product be a seasonal item? Not everything is obviously a seasonal product. There may be ups and downs for your item, too, and you just didn’t realize it before. If you’re selling something out of season, then you might have a long-tail problem on your hands.
Remember that you don’t necessarily have to liquidate inventory that isn’t selling well right now if you know that it still has good potential, just not at those levels. Do some computations to find out how many you need to have in stock at what times, then remove the excess inventory and send it back to Amazon as needed.
Knowing the seasonality of your product will also help you to determine when you should liquidate if it comes to that, so you can retrieve as much of your investment as possible – and maybe even still make some profit.
5. Optimize Your Listings
One of the most common causes of poor sales is poor listing performance. If you see a drop in sales or no sales at all, make sure that you have properly optimized your listing with the right keywords, quality images and good copy in the right places.
If you see no improvement after getting your listings properly SEO’d, then one more vote is cast for liquidation.
6. Use a Repricer
Because ultimately, it’s a race to the bottom, you will need this tool to help you maintain competitive in terms of price. A repricer automates these adjustments so you don’t spend all your time trying to keep up with everyone else selling that same or similar products. Many times, temporarily lowering your prices – but not beyond the limits of your profit margins – is a great way to run down inventory so you can avoid high storage fees.
You should, of course, not be the lowest price all the time if it means sacrificing profits – that’s your last-ditch option when you’ve decided that you have to liquidate, so you can get rid of useless inventory efficiently.
7. Get Product Reviews
Have you made an effort in the past to get good product reviews? If you have a quality item and give good customer service, there’s no reason why you shouldn’t be able to get some nice 4 and 5-star reviews to boost your rankings. Do this in tandem with a price drop to maximize results. Once you appear higher in searches, get a boost in traffic and sales with your low price and collet some great reviews, your chances of gaining momentum for that product and making more sales at the regular price increase.
Consider getting reviews off Amazon as well. There are a number of influencers on sites like Facebook and YouTube that you can send product to and have them review it. Then you can promote that review on whatever channels you have at your disposal to generate hype for your product.
If you have a good number of good reviews – especially after improving your overall performance – and you’re still not selling, check your overall product rating. You can make an effort to get more good reviews to drown out any bad ones and eventually raise your star rating, if that’s the more profitable option. There are several tools out there that can help you automate this activity, too.
If it’s not a wise endeavor to salvage the listing, then there’s a good chance that liquidation is your best option. Just make sure that you take into account the fact that you’re not selling because of poor seller performance in the past and not because the product has little value – don’t settle for too low a price!
8. Bundle Your Product
Bundling a low-performing product with a mid- to high-performing product is a good way to sell off some inventory. Bundling is actually a two-pronged approach – it creates demand for a product because a discount is inherent to bundles, which is also a way to get that product into the hands of more customers so they can see how great it is.
9. Advertise and/or Promote
If you know that your product has potential, try running PPC campaigns to boost traffic to your listing to generate awareness and increase sales. You can run Sponsored Products or Headline Search Ads n Amazon, or offsite PPC on Google, Facebook or an Amazon deals site to drive more shoppers to your listing.
Note that using a site like Snagshout is a great option since customers have to leave an honest review after a purchase before they can buy through the site again.
You can also run a promotion like free shipping or give a discount to encourage more sales. A giveaway is also a good alternative to bundling that can get you pretty much the same results.
10. Swap with Someone
If you and another seller are having the same issue with inventory that you can’t move on Amazon, you may be able to turn a profit by swapping product. Whether it’s because of poor reviews, a poor match with your brand, or some similar reason, you may very well have much better luck selling the other guy’s product, and vice versa.
11. Use Alternative Channels
If you’re having trouble selling on Amazon, consider trying a different channel. You can very well have a better opportunity on sites like eBay, Woot, your own website, or Facebook.
Ultimately, if you must liquidate, you can also use a liquidation website, and still have Amazon fulfill for you – easy-peasy.
Final Options to Liquidate Inventory
Sometimes, hoarding inventory can be a greater loss than losing it. Do you think that’s the case for your brand? If so, take the chance to liquidate stock.
Liquidating frees up tied capital to reinvest in best-selling products. Plus, you can also resell those items elsewhere and still make a profit. With the new Amazon FBA Liquidations program, you can make a profit out of excess inventory. You’ll enjoy some net recovery value and avoid storage fees.
This is a great opportunity to recover value from slow-moving items and returns. And it shows that Amazon is taking steps to protect sellers in the marketplace.
If none of the above solutions work and none of the liquidation options look good to you, you can try one of the following:
Amazon Liquidation Program – liquidate conveniently right through Amazon. Note, however, that Amazon usually offers only between 2.5% and 10% of the item’s original listed price, and you can’t back out once the product has been accepted. Amazon will also keep 10% of the total proceeds from the sale. You don’t have to worry about additional fees during the 60-day liquidation period, however, which is a plus. If you register by the first day of any month you can confirm acceptance by the fourth of that month.
Destroy the Inventory – if no option above is worth the effort or you think that it will hurt your brand in the long run, you can choose to have the inventory destroyed by Amazon. This option is found under the removal options in Seller central.
Final Thoughts
No one really wants to have to liquidate inventory because it can often mean taking a loss. It may just be the best choice, however, if keeping the inventory means losing even more. Just make sure that you do your due diligence to find the best way to move your inventory and implement it at the optimal time.
Remember that it’s not uncommon for a business to run into this situation so you don’t get too discouraged. And also remember that there are steps that you can take to avoid the situation from reoccurring in the future.
Authors
Julia Valdez is a professional teacher and long-time lover of the art of words on paper and the stage. She has an entrepreneurial heart and spends most of her time doing marketing and management, freelance content writing, volunteer work, and sharing lots of laughs over little crazy things.
Esteban Muñoz is an SEO copywriter at AMZ Advisers, with several years’ experience in digital marketing and e-commerce. Esteban and the AMZ Advisers team have been able to achieve incredible growth on the Amazon platform for their clients by optimizing and managing their accounts and creating in-depth content marketing strategies.
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