Amazon doesn’t tell anyone (who isn’t a loyal employee) exactly how their search algorithms work. That’s good. It’s essential that we’re all guessing. This makes sure one person doesn’t have a leg up over everyone else. All opinions about going out of stock are just that, opinions.
I’ve formed these opinions after going out of stock multiple times, and trying different strategies each time.
Why does everyone say not to go out of stock?
First, there’s the obvious reason. When you’re out of stock, you’re not selling anything. If you’re selling 10 units a day, that’s 10 sales going to your competitors.
More than that, when you go out of stock you lose BSR and your competitors have an opportunity to make progress, while you’re making no progress.
If you go out of stock you’re going to lose ground. The trick is losing as little ground as possible.
Why I’ve Gone Out of Stock
I’ve had 10 out of stock experiences with my products. I started selling on Amazon with a very limited budget. I’d set aside $10,000 to spend, which would have been plenty. As it sometimes does, life happened, and my wife lost her job. What was a very well funded adventure became a bootstrap operation.
I immediately reduced my budget to $1,000. I ordered $600 in product, and reserved a few hundred bucks for the rest of the stuff we have to spend money on. It was about 50 units.
My next order was 100 units, then 200, on up. Each time, sales accelerated, and I went out of stock for 10-25 days.
My second and third products started with smaller initial orders to limit risk. Each of those products have gone out of stock as well.
Why everyone says you should do everything possible to avoid going out of stock!
Most of the warnings I see about going out of stock aren’t specific. They just say don’t do it because it’s bad. I believe that originally, it was for the reasons I stated above. You lose momentum. While your competitors are adding reviews, seller feedback, and building sales velocity, you’re not. That’s a good reason not to go out of stock. You should plan your inventory as well as you can to avoid this.
Sales Momentum on Amazon
When you go out of stock, it’s going to take awhile to go back to the same sales volume you had before. I attribute this to momentum.
Think of Amazon as a pipeline. When you first start off, only a few customers are trickling through this pipeline. As you increase your marketing efforts and your listing has been around for awhile, that sales pipeline fills up.
Most customer’s don’t see your listing and click buy immediately because they love your product.
Instead, they add their item to their shopping carts. They add it to their wishlists. They bookmark it. They send it to friends. Then, gradually they buy your product.
Here’s an example with completely made up numbers just to illustrate my point.
Lets say you get 100 clicks a day. Here’s how it may break out:
- 80 new visitors
- 5% click buy – That’s 4 sales
- Another 10% add it to their wish lists or shopping cart
- 20 repeat visitors
- These visitors buy at a much higher rate, maybe 25% – That’s 5-6 sales
- For 100 visitors, this would mean a 9-10% conversion rate for your product
In this example, 8 people are adding your product to their future purchases “maybe” list. Over the course of the week, that’s 56 people who have your product on their short list. 112 in 2 weeks, 224 in 4 weeks, etc. etc.
As you can see, these “returning” visitors fill up your sales pipeline quickly, and when they return, they have a much higher purchase rate.
What happens when I go out of stock?
As you can imagine, you are now missing out on putting people into your sales pipeline. When they are ready to buy, you’re not there. People aren’t patient. They go to their next best option. Most don’t wait.
From a search perspective, when you go out of stock your listing isn’t shown in organic or search results. Your “Time since last sale” keeps ticking along, and your BSR starts to rapidly increase. You may go from a 5,000 BSR to 200,000.
BSR Doesn’t Drive Search Results
If you don’t believe me, go search for your most popular keywords. You’ll see that the order of the search results isn’t listed in order of BSR. There must be other factors at play here. In my experience, Amazon puts the listings that make them the most money at the top. That means they’d prioritize the items that sell the fastest and the most.
I believe Conversion Rate and Sales Velocity are two major factors that effect your search ranking.
Strategies for avoiding going out of stock
Often times sellers are told to raise their prices to avoid going out of stock. They’re also told to stop marketing tactics.
Raising Your Price
Raising your price slows down sales by lowering your conversion rates. When you raise your price, instead of getting 10 sales for every 100 visitors, you may get 5 sales. This helps you preserve inventory.
On the down side, instead of believing your product has a 10% conversion rate, Amazon now looks at it and they see a 5% conversion rate. This means that your search rankings go down rapidly, and those products with an 8 or 9% conversion rate now outrank you.
This changes your sales velocity. If you cut your traffic back to 50 clicks a day instead of 100, you now have 5 sales per day. Sellers who maintain their conversion rate AND velocity now bump up ahead of you on in search rankings.
When you come back in stock
When you come back in stock, Amazon ranks your products according to your history. I can’t tell you for sure how far back they look, no one can. I can’t tell you that there isn’t a “out of stock penalty” but I don’t think there is. My belief is that the “penalty” that some have observed is simply that their sales pipeline is empty, and has to be filled up again.
When I’ve come back in stock, I’ve been ranked everywhere from page 2 to page 10 of the search results, but I’m still in the results. This is proof that Amazon must look at history.
I just let it run out naturally. I don’t do anything differently.
Here’s my theory:
When you come back, Amazon looks at your history. Sure, you don’t have any sales since last time you were in stock, but you don’t have any visitors either. This means if you had a 10% conversion rate, Amazon still sees a 10% conversion rate.
There’s no velocity when you’re out of stock, but if you’ve raised your price so you’ll never run out of stock, you have very little velocity. So this is a moot point.
I’ve done it both ways
As I said earlier, I’ve been out of stock a lot. I wasn’t smart enough to save any numbers for proof. I found that when slowed sales down instead of running out of stock, I lost more search ranking than when I just let stock run out.
I think running out of stock is like a pause button. You’re going to loose ranking either way, but letting it run out naturally has minimized impact.
Tell me about your experiences below, in the comments!