Passive Income Opportunities for
Online Booksellers

In this article I'm going to discuss how passive income opportunities are crucial to the success of large scale Internet bookselling.

In my last article I taught you the importance of cash flow for the online used book seller in maintaining and growing a thriving operation.

You learned that the net profit on your Profit & Loss statement is not the key metric in determining the health of your business.

Rather, it's the Statement of Cash Flows that is the truth teller in gauging the viability of the operation.

What Are "New Listing Sales?"

Hopefully, you realized from my previous article that new listing sales alone won't sustain your business.

New listing sales are those sales that occur within 30 days of a book being put up for sale in your Amazon book store.

Typically, about 33% of newly listed books will sell within 30 days for a second hand book seller. This is called your new listing sales rate.

For example, if you list 1000 books on January 1st, you should sell at least 330 of them by January 31st if you follow the book scouting guidelines outlined in Internet Bookselling Made Easy!

The reason new listing sales aren't enough to support your business is because the capital requirements to constantly acquire new inventory assets each month create a negative cash flow for the company.

What's needed are passive income opportunities to supplement new listing sales and increase overall monthly revenue to cover operating expenses and asset acquisition.

What are "Residual Sales?"

The passive income opportunities needed to maintain your business are called residual sales.

Residual sales are those sales that occur after the first 30 days of a book being put up for sale in online used bookstores.

Typically, residual sales start off at around 10% of your remaining newly listed inventory. This is called your residual sales rate.

For example, after selling the first 330 newly listed books, based on your new listing sales rate, you have 670 books left in your inventory.

Therefore, after 30 days and before 60 days have passed you'll sell another 67 books based on your starting residual sales rate. After 60 days the residual sales rate tapers off over the next six to nine months until it flattens out at around 1% monthly of your remaining inventory.

Working Capital

Residual sales will fill the gap between your operating expenses and asset acquisition costs once you've built up enough inventory to derive significant passive income opportunities in the form of additional sales.

Therefore, while building your inventory to sustainable levels, you need sufficient working capital to compensate for the negative cash flow until your residual sales make up the difference between income and expenditures.

The exact amount of working capital you need is dependent upon how large you want to grow your business, how fast, and on which venues you decide where to sell books.

Your growth target will also dictate the level of infrastructure needed to support the expansion of the business.

For example, a sufficiently large bookwarehouse, pallet racking, a forklift, employees, utilities, book seller software, etc.

How To Produce Passive Income

After a period of months you'll accumulate a sufficiently large enough inventory base so that passive income opportunities from residual sales will cover any revenue gap between new listing sales and total overhead costs.

This will be true even at a 1% inventory turnover rate so long as you've maintained an average revenue per sale of at least $10 and kept your rent and utilities expenses below 20% of gross sales.

In addition, you'll sell unusable books for cash to bulk purchasers when you can't sell them online. This is another income stream that materializes when you scale up your business.

As you can see, things can get quite complicated when you're selling used books on Amazon in a big way. Effective cost containment is crucial in managing a large scale bookselling business. Margins are thin and you must avoid spending money whenever possible.

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