Hey everyone! Perrin here.
It’s been a while (about a month to be exact) since we’ve recorded a podcast on our Amazon FBA business.
And believe me, we’ve wanted to talk to you guys about it. We’re more excited about our Amazon FBA business than pretty much anything right now (aside from maybe Long Tail Pro 3.0.). But we couldn’t because our business was at a total stand-still (more on this below).
If you’re not up to speed, you can listen to our last couple of episodes about it here:
- Podcast 62: April Income Report and Thinking Big with Amazon Physical Products
- Podcast 61: Selling Amazon Physical Products: Questions and Answers
- Podcast 60: How I Made $4,399 Selling a Physical Product on Amazon in Just 30 Days
- Podcast 59: How to Be the ONE (with Several Real Life Business Examples)
But today, we’re back at it, and we’re ready to fire up another podcast episode about our Amazon FBA business.
And you’re going to love this one. We’ve got a lot to share, a lot to be excited about, and a lot of big dreams to chase. How’s it all come together? Check it out.
Here’s a quick recap of what’s been going on (+ a reason for our radio silence)…
We started the Amazon FBA business a few months ago. Spencer researched a product, contacted manufacturers, and got the product listed on Amazon in his free time. Really, we just wanted to see if it would work at all because we had a few colleagues who were making a killing.
We sold out of that test order in 40 days and made about $6,000 in revenue.
And we knew we had a winner on our hands. So, of course, we wanted to restock our inventory as soon as possible.
We also figured that if we found one winner, we could certainly find others, so we wanted to spend some time expanding our inventory to include other products in the same market.
So, shortly after we sold out, Spencer put his nose to the grindstone to (1) get our winning product back on the market ASAP, and (2) research other products we could sell under the same brand.
However, while Spencer knocked that out pretty quickly, we ran into a few hiccups that caused some pretty big delays:
- We changed our shipping method, which takes a lot more time (more on this in a bit)
- The manufacturing process isn’t easy: we had some delays
- The product had to wait in line to get through customs (which is fairly common when shipping internationally), and the product sat in the port for a little over a week.
And really, these are just growing pains. We did not expect to sell out of our very first product in 40 days, and we kind of had to scramble to get it up and running again.
Was it a big deal? No. No one likes waiting, but when you’re in the physical products business, some stuff just takes a little more time, and that’s okay.
But that’s the general reason for the radio silence for the last couple of weeks.
But we’re back!
Earlier this week, we finally received our shipment from China, and after sitting in an LA warehouse for a while, we’ve shipped it off to Amazon, and it should be live in a couple of days.
From here on out, we’ll be keeping very close track of our inventory, and if a product starts to sell, we’ll be ready to put in orders much sooner to stay stocked up and keep the money rolling in.
Before we really get into some of the juicier stuff—like profits and revenue—let’s chat about some of the things we’re doing in the next phases of our business.
We’re using a different shipping method.
When we ordered our test products, we wanted them here fast. We wanted to prove the business model as fast as we possibly could, so we would know whether or not we should even be spending our time, energy and money on this stuff.
To do that quickly, we had our test batch shipped by air, which is considerably more expensive than other shipping methods (but it’s the fastest). Because it’s so expensive, it cuts into our margins.
With our current batches, however, we’ve been shipping via ocean freight. It’s much slower (it takes a few weeks to get from our manufacturer to the United States).
But it’s also way cheaper. In fact, shipping is one of the biggest costs associated with selling physical products, so cheaper shipping can mean a much bigger bottom line.
To give you an idea of exactly how much cheaper: shipping over water costs about a fourth of what it does to ship something by plane. That’s a major difference—especially because we’ve got a slightly bigger, slightly heavier product.
We’ll be keeping a very close eye on our inventory, so we can continue to take advantage of cheap ocean freight rates
We’re going to be managing our timeline differently (and better).
We now know it can take up to six weeks to get product from China to Amazon’s warehouses. And our product is doing very well, so we do not want to be out of stock.
And it’s not because Amazon docks your rankings or anything (we actually found the opposite: we got to put our product back online after a few returns, and our product immediately sold out again).
No, we want to stay in stock because we want to keep this gravy train rolling.
To do that, we must manage our timeline differently. We know we can’t wait until we run out of stock to order more inventory.
So we have to answer this question: “When are we going to pull the trigger on ordering more inventory in the future?”
It depends on the trend of the product. Because he’s been watching it so closely, Spencer now has a pretty good idea of what the upper limit is for daily sales, which means he also knows how fast we’ll run out of inventory if we approach our maximum velocity (units per day / total units).
When the product goes live, Spencer will be tracking the trend to see how quickly the product is approaching the maximum.
For this particular product, that’s about 10 units per day (with our current marketing and Amazon rankings). If we hit that number and sustain it for a week or so (enough that we’re confident sales will keep up at that rate), we’ll order more product.
There is kind of a fine line to walk here, though: you don’t want to run out of stock, but you also don’t want to invest more than you need and deplete your capital.
Plus, for new sellers, Amazon only allows you to stock so many units anyway.
So it’s a bit of a dart toss, and it’s something we’ll get better and better at as time goes on.
For your businesses, the lesson is just to understand the upper sales ceiling for your specific product and just do the math to see when you’ll run out. Then, order more units with plenty of lead time.
We’re planning for unforeseen hiccups.
These were just a few of the problems we ran into with our latest batch of products:
- Our manufacturer had problems actually producing the product
- There was a major holiday in our manufacturer’s country
- We had problems with customs
- One of our boxes was literally dropped off a crane (…seriously)
- We ordered way more product than Amazon would allow us to store in their warehouse (Spencer had to write a nice, flattering “pretty please” email to get our warehouse space increased)
This is not a niche site. You are not in control of everything. Heck, man, you’re not in control of most of the stuff that has to happen to get a product listed.
These are physical products. There is a lot more potential for things to wrong. There are a lot more people to depend on.
We’re trying to expand this business fast by adding more products.
If your niche site’s doing well, what do you do? Add more content, right?
The same principle applies here, too, expect it’s physical products instead of articles. We want this business to take off—and we want it to happen, like, yesterday.
So we’re going to be adding as many products as makes sense. For now, that means we’ve ordered four more products in addition to our winner.
A few notes on our new products:
First, these products are all in the same market. That’s mostly because we’re building an entire niche site around our products, and we’re kicking around the idea of turning it into a full-blown eCommerce store. That’s very hard to do if your products are all in different markets.
We also want people who buy one of our products on Amazon to possibly buy some of our other products. It’s like the old adage goes: “The best customers are the ones you already have.” We have a much greater chance of capturing those repeat buyers if we can offer them products we know they’re interested in.
Secondly, Spencer researched these products in the exact same way. We looked at what else was selling. We looked at how many reviews they were getting. The only difference between this round of research and the last is that we’ve already validated the market in general. But otherwise, it’s the same stuff.
Perhaps the most important lesson here, though, is that Spencer was specifically looking for other Joe Schmoes like us.
This is exactly what we do when building niche sites: we look for sites just like us that are already ranking and doing well. It’s the cornerstone of our market research. You can do the same thing on amazon.
In other words, if we’ve said it once, we’ve said it a thousand times: competition is a good thing—especially if they’re people like you.
We do! We got a ton of feedback on this post, and there were loads of amazing comments—some arguing for the idea of being “the one” (being unique in your market) and some arguing against it.
So we’re doing what any good marketer would do. We’re testing it.
Of our four new products, 2 have unique features (making us “the one”), and 2 are just straight up private label products. (And when we say “unique”, we really just mean that no one else is selling the exact product on Amazon…our manufacturer was already making this product long before we came around. We didn't make any special requests to our manufacturer, but we are unique to Amazon).
We feel pretty strongly that it’s a better long-term business decision to be more unique, but there are lots of people having success with both types of products. We want to see what works in our market, and we want to reach a more conclusive answer for you.
We’re slowly but surely developing a good pricing strategy for our products.
With our first product, we were mostly guessing. In addition to our costs being way higher than normal (because we used more expensive shipping), we didn’t really know what price would actually move the products.
With our new products, we have a much better idea of how buyers operate in this vertical. We also have a much better idea of how much money we want to make.
So here’s where we’re going to price the new products (to start): we’re going to price them to double our investment.
In other words, we’re going to calculate the total cost for each product. That includes the cost of manufacturing, the cost of shipping, Amazon’s fee, and a conservative calculation for lost or damaged inventory.
Whatever that number is, we’re going to price the products to double that.
So, if our total cost is $2,500 all told, we’ll price the units to sell for a total of $5,000.
In other words, we’re going to be trying to build a machine that turns $1 into $2. Of course, pricing can be tricky, and it’s something you have to test.
If you’ve been following this case study from the beginning, you’ll remember that we actually raised the price of our first product by a lot to try to keep it in stock, and it just kept selling. We learned that we could price it much higher than we were.
We’ll be testing all the products in a similar fashion, but to start, we’re going to price them to double our money.
Yes, we’re still building a niche site!
Yep, we’re still building a niche site around this business.
That’s mostly my domain, and I’m trucking along. We’ve got some content up, and we’re experimenting with a lot of new monetization and link-building strategies. We’ll report on that soon.
We were also greatly inspired by our last podcast guest, Steve Chou, who built an eCommerce store with his wife that replaced her 6-figure salary in the first year.
Steve mentioned that he sells on both Amazon and his own site, and that he often uses Amazon FBA as a cheap way to test and see if a product will sell.
We haven’t made any decisions yet, but we think we may want to move in that direction. And we want to do that for a couple of reasons:
- It protects us from sudden change in Amazon
- It gives us access to our own media
- It gives us access to other ways to scale (mostly through PPC)
- It’s a testing ground for other strategies we’ve seen around the web
That’s the meat and potatoes of this episode. But there’s more…
If you want to listen to the rest of the podcast, we also cover:
- How much money we think we can actually make from this business
- A few of our crazier (and probably stupider) product ideas
- Lots more hard numbers and examples you can apply to your own business
What do you guys think?
Have any of you been dabbling in Amazon FBA? Where are you in your business? Let us know in the comments!
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